Crypto Tax India 2026: 30% Rule, 1% TDS, Schedule VDA Guide

Crypto Tax in India: TDS, 30% Slab, and How to Legally Report VDA Income

Crypto tax India rules under Section 115BBH and Section 194S have been in force since FY 2022-23, but every ITR filing season produces fresh confusion about how the 30 percent flat tax, the 1 percent TDS, and the no-loss-set-off rule actually interact in a real tax return. The WazirX recovery situation, ongoing P2P transactions, foreign exchange reporting under Schedule VDA, and persistent retail trading have kept the topic firmly in the must-know category for every Indian who has touched a token.

This guide walks through how the 30 percent flat tax works, the 1 percent TDS mechanics under Section 194S, the no-set-off rule that traps unwary traders, the P2P and foreign exchange reporting obligations, and how Schedule VDA in the ITR form actually gets filled out. The point is to leave a crypto holder able to file a clean, audit-defensible return without paying for hand-holding from a tax professional for routine activity.

How the 30 Percent Flat Tax on Crypto Works

Section 115BBH of the Income Tax Act levies a flat 30 percent tax on income from the transfer of any Virtual Digital Asset (VDA). The definition of VDA is broad and covers cryptocurrencies, non-fungible tokens, and any digital asset notified by the government. Stablecoins, governance tokens, and wrapped tokens all fall within the same definition.

The 30 percent rate is applied on the net gain, computed as the sale consideration minus the cost of acquisition. No deduction is permitted for expenses other than the cost of acquisition itself. Brokerage, exchange fees, gas fees, and any other transaction cost cannot be deducted under Section 115BBH. The treatment is intentionally restrictive compared to other capital-asset regimes in the Indian tax code.

The cess and surcharge layer on top

The 30 percent statutory rate becomes an effective 31.2 percent after the 4 percent Health and Education Cess. For high-income taxpayers, an additional surcharge of 10 to 37 percent of the tax further raises the effective burden. A taxpayer with total income above Rs 5 crore who reports crypto gains pays an effective tax rate close to 42 percent on those gains, which is materially higher than the slab rates on regular income.

The 1 Percent TDS Under Section 194S

Section 194S requires the buyer of any VDA to deduct 1 percent TDS on the gross consideration paid to the seller, subject to a small annual threshold. On Indian exchanges, the exchange itself acts as the deductor, and the buyer sees the 1 percent automatically debited from the sell-side proceeds.

The TDS is not the final tax. It is a credit available against the 30 percent slab liability computed at year-end. A trader who has had Rs 50,000 of TDS deducted during the year and computes a final crypto tax liability of Rs 1.5 lakh will pay Rs 1 lakh as self-assessment tax and claim the Rs 50,000 as TDS credit in the ITR.

Why the TDS rate is structurally punishing for active traders

The 1 percent TDS is on gross consideration, not on net gain. A trader who buys Bitcoin at Rs 50 lakh and sells it at Rs 50.5 lakh has a gain of Rs 50,000, but the TDS is computed on Rs 50.5 lakh, which is Rs 50,500. This is the entire gain. For high-turnover traders running many small-margin trades, the cumulative TDS can exceed the cumulative gains, which produces a refundable position at ITR time but ties up working capital for months.

P2P and foreign exchange complications

The Section 194S deduction obligation falls on the buyer when there is no intermediary. In a peer-to-peer transaction between two Indian residents, the buyer is statutorily required to deduct 1 percent and deposit it with the government on the seller’s PAN. Few P2P participants actually do this, but the obligation exists and the Tax Department has been increasingly active in identifying P2P flows through bank account analysis.

For purchases on foreign exchanges, the buyer is technically obligated to deduct the TDS even though the seller may not be in India. In practice, the Tax Department’s enforcement focus on foreign-exchange transactions has been on the disclosure side via Schedule VDA and Schedule FA rather than on the TDS side, but the law is on the books and the risk exists.

The No-Loss-Set-Off Rule

The most aggressive feature of Section 115BBH is that losses from VDA transactions cannot be set off against any other income, including gains from other VDAs. A loss on Ethereum cannot be set off against a gain on Bitcoin. A loss on any cryptocurrency cannot be set off against salary, business income, or capital gains from listed equities. A loss in one financial year cannot be carried forward to the next year against future crypto gains.

This is a sharp departure from the normal Indian tax treatment of capital assets, where short-term and long-term losses can be set off and carried forward within their respective baskets. The rule was deliberately designed to discourage tax-loss-harvesting strategies that are commonplace in other asset classes, and it raises the effective tax burden on active traders significantly.

How this changes the trading math

A trader running 100 trades a year with 60 winners and 40 losers cannot net the losses against the gains. The tax is computed on each winning trade at 31.2 percent (plus surcharge), and the losses are simply lost. For active traders, this means the breakeven win rate before tax is far higher than in any other asset class. Industry experts agree that this rule alone makes crypto day-trading in India structurally less attractive than equivalent equity or commodity day-trading despite the higher volatility.

What Counts as a Taxable Transfer

The term “transfer” under the VDA regime is broader than most retail holders assume. Selling crypto for INR is obviously a transfer. Less obviously, exchanging one crypto for another (Bitcoin for Ethereum or USDT for SOL) is also a transfer, with the fair market value of the asset received forming the sale consideration on the asset given up.

Using crypto to pay for goods or services is a transfer. Gifting crypto is a transfer, with specific rules for the recipient (gifts above Rs 50,000 from a non-relative are taxable as “income from other sources” for the recipient). Airdrops are taxable as “income from other sources” at the fair market value on the date of receipt, and a subsequent sale triggers an additional 30 percent tax on the gain over that fair market value.

The trap in crypto-to-crypto trades

A retail holder who actively swaps tokens on a decentralised exchange may run hundreds of crypto-to-crypto trades a year without realising that each one is a taxable transfer. Reconstructing the cost basis and fair market value for every leg of every swap is operationally hard, which is why most active DeFi participants in India face a substantial reconciliation problem at year-end.

The mining and staking question

Crypto received from mining or staking is taxable as “income from other sources” at the fair market value on the date of receipt, taxed at the recipient’s slab rate. The subsequent sale of the mined or staked crypto triggers the 30 percent tax on the gain over the fair market value at receipt. Mining costs (electricity, hardware) cannot be deducted against the mining income because of the broader no-deduction rule under Section 115BBH for the sale leg, though some practitioners argue that the deduction is permissible at the income-receipt stage. The position is unsettled, and conservative reporting is advised.

How to Fill Schedule VDA in the ITR

Schedule VDA was introduced in ITR forms from AY 2023-24 onwards to capture VDA transactions separately from regular capital gains. The schedule requires line-item disclosure of each transaction (or aggregated for high-volume traders), with sale consideration, cost of acquisition, and net gain or loss broken out. The total flows into the tax computation under Section 115BBH.

For a typical retail crypto holder with a few exchanges and a moderate number of trades, the cleanest approach is to download the full transaction history from each exchange (most Indian exchanges now provide a year-end statement specifically formatted for Schedule VDA), aggregate the buys and sells by VDA, and report the net gain. For traders using foreign exchanges, the aggregation must include all foreign-exchange activity, with the rupee value computed at the prevailing exchange rate on each transaction date.

The Schedule FA overlap for foreign-held crypto

If the crypto is held on a foreign exchange or in a self-custody wallet that the Tax Department interprets as foreign-held, Schedule FA also has to be filled with the year-end balance disclosed in the country of holding. The interaction between Schedule VDA (income side) and Schedule FA (asset side) is one of the most-asked questions every filing season, and the safe position is to disclose under both schedules if there is any foreign nexus.

The interaction with AIS

Indian crypto exchanges report transactions to the Tax Department, and these now appear in the taxpayer’s Annual Information Statement. A mismatch between the AIS and the Schedule VDA disclosure is a fast track to a tax notice. The first step in any crypto ITR preparation is to download the AIS, reconcile it against the taxpayer’s own records, and explain any deviations in the ITR notes if reasonable.

Common Mistakes Crypto Holders Make When Filing

The first mistake is treating crypto gains as regular capital gains. Some taxpayers report Bitcoin gains under “long-term capital gains from listed securities” at the lower 12.5 percent rate, which is plainly wrong and produces an obvious mismatch with the AIS. The correct head is “income from transfer of VDA” under Section 115BBH at 30 percent flat.

The second mistake is netting losses against gains. A taxpayer with Rs 2 lakh of Bitcoin gains and Rs 1 lakh of Ethereum losses cannot net the loss and pay tax on Rs 1 lakh. They must pay 30 percent on the full Rs 2 lakh of Bitcoin gains and forfeit the Rs 1 lakh Ethereum loss. Filing as a net produces a tax notice on the gross gain plus interest under Sections 234B and 234C.

The third mistake is ignoring the TDS credit. Active traders often have substantial TDS credits sitting in Form 26AS and the AIS that are forgotten at filing. Claiming the TDS credit against the final 30 percent liability is the single biggest cash recovery available to active crypto traders, and it should be the first reconciliation step in preparing the return.

Step-by-step schedule of VDA preparation

Download the AIS and Form 26AS for the financial year.
Download year-end transaction statements from every Indian and foreign exchange used.
Reconcile exchange data against AIS line items and explain deviations.
Aggregate buys and sells by VDA for the year and compute net gain on each.
Sum the per-VDA gains across all VDAs (ignore losses for set-off purposes; report them, but they do not reduce the tax).
Apply 30 percent plus 4 percent cess plus surcharge, if applicable, to the aggregate gain.
Claim TDS credit and any advance tax paid against the liability.
Fill Schedule VDA line by line or in aggregate; fill Schedule FA if foreign nexus exists.
File the ITR before the due date to avoid the 2026-onwards penalty for late filing of crypto-bearing returns.

WazirX Recovery and Other Frozen-Asset Situations

The WazirX hack in 2024 created a unique situation where many Indian retail holders had a substantial portion of their crypto stuck in a court-supervised recovery process. The tax treatment of these frozen balances has been a recurring question, and the position is now relatively clear: the tax event is the transfer, and a balance that has not been transferred remains the holder’s asset at cost.

If a holder receives a partial recovery in INR or in a different VDA, the receipt is treated as a transfer of the original holding at the recovery value, with the difference from the cost of acquisition being the gain or loss. The 30 percent tax applies to the gain. Where the recovery is in instalments or where the legal process is incomplete, the tax event arises on each receipt in line with the realisation principle.

Documentary support for the cost basis

The cost basis of the original crypto holding is the rupee amount paid to acquire it. For long-held coins where the original exchange has shut down or where statements are no longer available, the holder needs to reconstruct the cost using bank records, payment screenshots, and any KYC-verified transaction history. The Tax Department has been generally accommodating where the holder can show reasonable documentation, but unverifiable claims of cost basis tend to be challenged.

Comparison Table: Crypto Tax vs Other Capital Asset Taxes in India

Parameter	Crypto (VDA)	Listed Equity	Real Estate
Tax rate on gains	30% flat	12.5% LTCG / 20% STCG	12.5% LTCG / slab STCG
Long-term holding period	Not applicable	12 months	24 months
Loss set-off within asset	Not permitted	Permitted within head	Permitted within head
Loss set-off against other heads	Not permitted	Restricted	Restricted
Loss carry forward	Not permitted	8 years	8 years
Indexation benefit	Not available	Not applicable	Not available post-2024
Section 80C deduction eligibility	No	ELSS only	Home loan principal only
TDS on each transaction	1% under 194S	None	1% under 194-IA if over Rs 50 lakh
Schedule in ITR	VDA + FA if foreign	CG schedule	CG schedule

Advanced Strategy: Crypto in a Tax-Aware Portfolio

Given the punitive tax treatment, the structurally rational approach for an Indian crypto holder is to size the allocation modestly, hold for longer durations to reduce the trade frequency and the TDS drag, and concentrate in a few high-conviction names rather than running active trading. The 30 percent flat rate and the no-set-off rule together make active trading meaningfully less efficient than buy-and-hold.

For high-income investors who have already maxed out their equity and debt allocations and want a small allocation to crypto, holding the position for several years and treating it as a non-tax-shielded venture-style bet is the cleanest mental model. The downside is the volatility, but the tax-on-realisation profile rewards patience in a way that few other asset classes in India do today.

Pairing this with regime and FIRE planning

The 30 percent flat tax on crypto is regime-neutral, so the new vs old regime decision is unaffected by crypto holdings. For an investor running an aggressive FIRE plan, crypto is one of the few asset classes where the tax certainty is highest (the rules will not change overnight, and the rate is unlikely to fall), which makes it strategically distinct from equity, where future tax changes are the main uncertainty.

Frequently Asked Questions

Is gifting crypto to my spouse taxable?

Gifts between specified relatives, including spouses, are not taxable in the recipient’s hands at the receipt stage. However, when the recipient subsequently sells the gifted crypto, the gain is computed against the donor’s original cost of acquisition and is taxed at 30 percent in the donor’s hands under the clubbing provisions of Section 64. Gifting does not save tax in this scenario.

If I hold crypto on a hardware wallet, do I need to disclose anything?

Disclosure is triggered by transactions, not by mere holding. A pure self-custody position with no transfers during the year produces no Section 115BBH tax event. However, if the wallet is considered foreign-held (for example, the seed phrase generation or wallet provider has a foreign nexus), Schedule FA disclosure may still be required. When in doubt, disclose conservatively.

Can I claim deductions for crypto donations to a registered charity?

Donations of crypto to a charity registered under Section 80G can be eligible for an 80G deduction in the donor’s hands, computed on the fair market value of the donated crypto on the date of donation. The donation itself is a transfer under Section 115BBH and triggers a 30 percent tax on the gain over the cost. The two effects partially offset each other, and the maths should be run before donating.

What if I forgot to report crypto in a previous year’s ITR?

The taxpayer can file a revised return if the original ITR was filed within the relevant assessment year and the time for revision is still open. Beyond that window, the taxpayer can use the updated return mechanism under Section 139(8A) for up to 48 months from the end of the relevant assessment year, with additional tax and interest payable. Voluntary disclosure is generally treated more leniently than discovery during an audit.

Is there any tax-free threshold for crypto gains?

No. The Section 115BBH flat 30 percent applies from the first rupee of gain. There is no annual exemption similar to the Rs 1.25 lakh LTCG exemption on listed equities. The 87A rebate is also not available against income taxed under Section 115BBH, which means even a low-income taxpayer pays full 30 percent on crypto gains.

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