Income from transferring a virtual digital asset is taxed at a flat 30%, plus cess, under section 115BBH. Only the cost of acquisition is deductible. A loss on one coin cannot be set off against a gain on another, and it cannot be carried forward. That last rule is the one that hurts.
Buying and selling crypto is not illegal in India. It is simply taxed on terms that apply to no other asset. Understand the rules before the hype, because the tax can exceed the profit.
What are the crypto tax rules in India?
| Rule | Figure | Applies to | Source |
|---|---|---|---|
| Tax on transfer of a VDA | 30%, plus 4% cess | Any gain, whatever the holding period | Section 115BBH |
| Deductions allowed | Cost of acquisition only | No expenses, no exchange fees, no interest | Section 115BBH |
| Set-off of losses | None | Not against crypto gains, not against other income | Section 115BBH |
| Carry forward of losses | Not permitted | Losses simply lapse | Section 115BBH |
| TDS on payment for a VDA | 1% | Deducted by the payer on the consideration | Section 194S |
| TDS threshold, specified person | ₹50,000 in the financial year | Individuals and HUFs below the turnover tests | Section 194S |
| TDS threshold, everyone else | ₹10,000 in the financial year | All other payers | Section 194S |
| Depositing the TDS | Form 26QE within 30 days of month end | Specified persons; others use challan 281 within 7 days | Income Tax Department |
Rules as of 6 September 2026, from the Income Tax Department’s guidance on taxation of virtual digital assets. Section 115BBH and section 194S are both in the Income-tax Act, 1961.
Why can a flat year still produce a tax bill?
Because gains are taxed and losses are ignored. Suppose you make ₹5,00,000 on one coin and lose ₹5,00,000 on another in the same year. Your portfolio is flat.
The tax is not. The ₹5,00,000 gain is taxed at 30% plus cess, which is ₹1,56,000. The ₹5,00,000 loss buys you nothing. It cannot offset the gain and it cannot be carried into next year. You end the year down ₹1,56,000 on a portfolio that made zero.
Every other asset class in India works differently. Equity losses set off against equity gains and carry forward for eight years. Our government securities and sovereign gold bond pages show what normal tax treatment looks like.
Who deducts the 1% TDS, and why does it matter?
The payer deducts it. On an Indian exchange, the exchange usually handles it on your behalf. On a peer-to-peer trade, the buyer is responsible, and most people do not know this.
The thresholds are low. For a specified person the limit is ₹50,000 of consideration in the year. A specified person is broadly an individual or HUF with no business income, or with business turnover under ₹1 crore and professional receipts under ₹50 lakh. For everyone else the threshold is ₹10,000.
TDS is deducted on the consideration, not on the gain. So an active trader losing money still has cash withheld on every sale. You claim it back in your return, months later. That is a working capital cost nobody prices in.
What else should you know before buying?
A VDA received as a gift is taxable in the recipient’s hands under the normal gift rules. Airdrops and free tokens are not free. Report them.
Losses cannot be netted, so churn is expensive. Every round trip is a taxable event at 30% on the winners and nothing back on the losers. The tax structure penalises trading far more than holding.
And there is no investor protection layer. Crypto is not legal tender in India, exchanges are not brokers under SEBI, and there is no compensation fund if a platform fails. If you would not accept that risk on a deposit, do not accept it here. Compare against a deposit-insured bank account before you decide how much to commit.
Frequently asked questions
Is crypto legal in India?
It is not banned, and it is not legal tender. The Income-tax Act taxes transfers of virtual digital assets under section 115BBH, which means the law recognises the income even though the asset carries no regulatory protection. There is no SEBI or RBI investor protection scheme behind an exchange.
Can I set off my crypto losses against my crypto gains?
No. Section 115BBH does not allow a loss from the transfer of a VDA to be set off against any income, including gains from another VDA. It also cannot be carried forward. This is the single biggest difference from equity taxation.
Do I pay tax if I only moved coins between my own wallets?
A transfer between your own wallets is not a sale, so there is no gain to tax. Keep the records that show both wallets are yours. Where an exchange has deducted TDS on such a movement, you reclaim it through your return.
What if I did not report earlier crypto trades?
You can file an updated return under the ITR-U route, which allows filing up to 48 months from the end of the assessment year with additional tax. Exchanges report transactions and TDS flows into your Form 26AS, so unreported trades are visible to the department.
Sources
- Taxation of Virtual Digital Assets, section 115BBH — Income Tax Department, incometaxindia.gov.in.
- Section 194S, TDS on payment for transfer of virtual digital assets, rate and thresholds — incometaxindia.gov.in.
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