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Income Tax · TDS/TCSTDS on virtual digital assets and crypto (Section 194S): 1% rules explained
Every crypto sale in India carries 1% TDS, and the gain is taxed at a flat 30% with no loss set-off. Budget 2026 added penalties for crypto reporting failures. Here is how TDS works on exchanges and peer-to-peer trades, and how to report VDA income.
Virtual digital assets (VDAs) – cryptocurrencies, non-fungible tokens and similar tokens – have a special tax regime since 2022. Two provisions work together: Section 115BBH (tax at 30%) and Section 194S (1% TDS on transfer). Under the Income-tax Act, 2025, VDA tax is in Section 194 (table) and TDS is an entry in Section 393(1).
The tax regime
| Point | Rule |
|---|---|
| Tax rate on gains | 30% + surcharge + 4% cess, regardless of holding period or slab |
| Deductions | Only cost of acquisition; no expenses, no indexation |
| Losses | Cannot be set off against any income (even other VDA gains in some readings) or carried forward |
| Gifts of VDA | Taxable in the recipient's hands above ₹50,000 (non-relative) |
| Mining / staking rewards | Taxable on receipt as income; later sale under 30% regime |
TDS under Section 194S
| Point | Rule |
|---|---|
| Who deducts | Person paying consideration for transfer of VDA to a resident |
| Rate | 1% of consideration (20% without PAN) |
| Threshold | ₹50,000 a year for specified persons; ₹10,000 for others |
| Exchange trades | Exchange deducts (CBDT guidelines on who deducts in different exchange models) |
| VDA-for-VDA swaps | Both parties are buyers and sellers; TDS to be paid before releasing consideration |
| Payment in kind | Payer must ensure tax is paid before release |
Worked example 1: exchange trader
Example: Rohan, a salaried employee in Gurugram, trades on an Indian exchange in FY 2025-26:
| Coin | Bought | Sold | Gain/(loss) | TDS (1% of sale) |
|---|---|---|---|---|
| Bitcoin | ₹3,00,000 | ₹4,20,000 | ₹1,20,000 | ₹4,200 |
| Ethereum | ₹2,00,000 | ₹1,60,000 | ₹(40,000) | ₹1,600 |
| Altcoin X | ₹50,000 | ₹90,000 | ₹40,000 | ₹900 |
- Taxable VDA income = ₹1,20,000 + ₹40,000 = ₹1,60,000 (the Ethereum loss of ₹40,000 cannot be set off).
- Tax = 30% × ₹1,60,000 = ₹48,000 + cess ₹1,920 = ₹49,920.
- TDS credit = ₹6,700. Balance ₹43,220 payable as advance/self-assessment tax.
Worked example 2: P2P trade
Example: Simran sells USDT worth ₹2,00,000 to an individual buyer through a P2P platform. If the buyer is a specified person, the ₹50,000 threshold applies to the buyer's total payments; above it, the buyer must deduct ₹2,000 and deposit it using a challan-cum-statement. In practice, P2P platforms may handle TDS – check the platform's process and your Form 26AS.
Foreign exchanges
Trading on foreign exchanges does not escape tax – gains are taxable at 30% for residents, and holdings may need reporting in Schedule FA. TDS may not be deducted, so pay advance tax yourself.
Reporting in the ITR
- Use Schedule VDA in ITR-2 or ITR-3, with date of acquisition, date of transfer, cost and consideration for each transaction.
- If trading is your business, report under business income but tax remains at 30%.
- Match TDS with Form 26AS and AIS (exchanges file SFT statements).
Budget 2026: penalties for VDA reporting
Budget 2026 proposed penalties for reporting entities that fail to furnish VDA transaction statements – ₹200 per day for non-furnishing and ₹50,000 for inaccurate particulars not corrected (new Section 509), as reported. Exchanges' reporting will feed your AIS more completely.
Advance tax
TDS at 1% is far below the 30% tax. Pay advance tax by the instalment dates after your gains to avoid interest.
Common mistakes
- Setting off crypto losses against gains on other coins or shares.
- Deducting fees and gas charges from gains (not allowed).
- Ignoring foreign exchange trades.
- Not paying advance tax because "TDS was deducted".
Key takeaway
Crypto gains are taxed at 30% with no loss set-off, and 1% TDS applies on sales above the thresholds. Keep transaction-level records and pay advance tax. Our income tax team prepares Schedule VDA computations from exchange reports.
Official references
Provisions discussed (summaries in our Law Library):
- Income-tax Act, 2025 – Section 393(1) (corresponds to 194S): TDS – virtual digital assets
- Income-tax Act, 1961 – Section 194S (corresponds to 393(1)): TDS – virtual digital assets
Official sources to verify the current text, notifications and circulars:
Frequently asked questions
What is the TDS rate on crypto?
1% of the consideration for transfer of a virtual digital asset, deducted by the buyer or the exchange. Without PAN, 20%.
Is there a threshold for TDS on crypto?
Yes. ₹50,000 a year for specified persons (individuals/HUFs not liable to audit) and ₹10,000 for others. Above these, TDS applies.
How is crypto income taxed?
Gains on transfer of VDAs are taxed at 30% plus surcharge and cess, with only the cost of acquisition deductible. Losses cannot be set off against any other income or carried forward.
Who deducts TDS on an Indian exchange?
Generally the exchange deducts and deposits TDS on behalf of the buyer under CBDT guidelines, and the seller sees the credit in Form 26AS.
Is buying crypto with rupees taxable?
No. Tax arises on transfer (sale or swap). TDS is deducted by the buyer or exchange from the seller's consideration.
Can I deduct exchange fees from my crypto gains?
No. Only the cost of acquisition is deductible under the VDA tax regime.
Is gifting crypto taxable?
A VDA received as a gift from a non-relative is taxable in the recipient's hands if the value exceeds ₹50,000; gifts from relatives are exempt.
This article is general information on the law as on 10 November 2026, written for educational purposes. It is not professional advice for your case. Section numbers under the Income-tax Act, 2025 should be confirmed with the official section mapping on the Income Tax Department website before use in filings.
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