Crypto Tax in India: The 30% VDA Rule, 1% TDS, and Reporting It Right

Crypto taxation in India is unusual in a specific way: it was designed from the start to be unfavourable, and nearly every intuition carried over from equity or property investing turns out to be wrong. There is no long-term rate no matter how long you hold. Your exchange fees are not deductible. A loss on one coin does not offset a gain on another, let alone anything else you earn. And the year the whole thing became visible to the department in fine-grained detail has already arrived. Most people who get this wrong are not evading anything, they are simply applying capital gains logic to a set of rules that quietly does not use it.

What Counts as a Virtual Digital Asset

The definition is broad by design. It covers cryptocurrencies, tokens, and non-fungible tokens: essentially any information, code, number, or token generated cryptographically that can be transferred, stored, or traded electronically. It does not cover Indian currency, foreign currency, or holdings that are already defined as something else under tax law, such as listed shares held in demat form. In practice, if you bought it on a crypto exchange or received it into a wallet, assume it is a VDA and that the special regime applies.

The Flat 30%, and Why It Bites Harder Than It Looks

Income from the transfer of a VDA is taxed at a flat 30%, plus applicable surcharge and the 4% health and education cess, regardless of your income slab and regardless of how long you held the asset. Someone whose other income falls entirely within the basic exemption limit still pays 30% on their crypto gain. The severity, though, comes less from the rate than from what you are allowed to subtract from it: only the cost of acquisition, and nothing else. No exchange or brokerage fees. No gas or network fees. No trading software, no internet costs, no interest on money borrowed to buy in. If you bought a token for ₹1,00,000 with ₹1,500 in fees and sold it for ₹1,40,000 with ₹2,000 in fees, your economic profit is ₹36,500 but your taxable gain is ₹40,000.

Losses: The Rule That Surprises Everyone

A loss on the transfer of a VDA cannot be set off against any income at all, and it cannot be carried forward to a future year. Read that carefully, because the harshest part is not that crypto losses can't shelter your salary, which most people expect. It is that a loss on one crypto asset cannot be set off against a gain on another crypto asset either. Sell Bitcoin at a ₹2,00,000 gain and Ethereum at a ₹1,80,000 loss in the same year, and you are taxed on the full ₹2,00,000, not on the ₹20,000 you actually made. Tax of roughly ₹62,400 on real economic profit of ₹20,000. This single rule is why year-end loss harvesting, standard practice in an equity portfolio, does nothing whatsoever for a crypto portfolio, and why anyone trading actively should be tracking each disposal separately rather than looking at a portfolio-level profit and loss figure that has no bearing on what they owe.

The 1% TDS Under Section 194S

Separate from the 30% tax, a 1% TDS applies to the consideration paid for the transfer of a VDA. The annual threshold is ₹50,000 for specified persons, broadly individuals and HUFs without significant business or professional turnover, and ₹10,000 for everyone else. On an Indian exchange this happens automatically: the exchange deducts, deposits, and reports it, and the credit shows up against your PAN in Form 26AS and your AIS.

Two situations catch people out. In a peer-to-peer trade or a transfer through a platform that does not deduct, the obligation to deduct and deposit falls on the buyer, and a buyer without a TAN generally uses the challan-cum-statement route rather than a regular TDS return. Using an offshore exchange does not remove the obligation either; it just moves it onto you. It is also worth being clear that the 1% is not an extra tax. It is a prepayment, fully adjustable against your final liability, and you claim credit for it when you file. For an active trader, this cuts both ways: the deduction is on the gross consideration of each trade rather than on your profit, so someone churning the same capital repeatedly can easily have far more TDS sitting with the department than they ultimately owe. That surplus comes back only through a filed return, which makes filing worthwhile even in a year you lost money.

Reporting It in Your ITR

1. Download the full transaction and TDS statements from every exchange and wallet you used during the year, not just the one you traded on most.
2. List each disposal separately with its date of acquisition, date of transfer, cost of acquisition, and consideration received. Schedule VDA is built around transaction-level reporting, not a single annual total.
3. Pick the right form: ITR-2 where you hold crypto as an investor with no business income, or ITR-3 where your activity is frequent and systematic enough to be treated as a business.
4. Fill Schedule VDA with your disposals, and make sure the gains flowing from it match what you report as income.
5. Claim credit for every 194S deduction, and reconcile the total against Form 26AS and your AIS before you file rather than after.
6. If you hold crypto on a foreign exchange or in a foreign wallet and you are Resident and Ordinarily Resident, report it in Schedule FA as well. Foreign asset reporting applies regardless of value and carries its own penalties for omission.

The Reporting Net Tightened This Year

A change worth registering: from 1 April 2026, prescribed reporting entities are required to furnish statements of crypto-asset transactions to the tax authorities, a provision introduced as Section 285BAA of the 1961 Act and carried into the Income Tax Act, 2025. It aligns India with the OECD's Crypto Asset Reporting Framework, under which participating jurisdictions begin exchanging crypto account information with each other. The practical consequence is straightforward. Transactions that once existed only in an exchange's own records are increasingly reported into the same system that populates your AIS, and cross-border holdings become considerably less invisible than they used to be. If you have been treating an offshore exchange as outside the perimeter, that assumption has a short remaining life. The reconciliation habit that has long been sensible for salary and interest income now applies to crypto too: pull your AIS, compare it against your own exchange statements, and resolve differences before you file rather than explaining them afterwards.