What you need
- 30% Flat Tax — All crypto gains taxed at 30% regardless of income slab (+ 4% cess = 31.2%)
- 1% TDS — Deducted at source on transactions above ₹10,000 (claim back in ITR if excess)
- No Loss Set-Off — Crypto losses cannot reduce tax on other gains or income
- No Deductions — Only cost of acquisition allowed; no trading fees, electricity, or depreciation
- Every Trade is Taxable — Crypto-to-crypto trades also taxed, not just crypto-to-INR
- File in Schedule VDA — Use ITR-2 or ITR-3 with dedicated VDA schedule
Understanding India's Crypto Tax Structure
India introduced crypto taxation under the Finance Act 2022, creating Section 115BBH and 194S in the Income Tax Act. Here's the complete breakdown:
What is VDA (Virtual Digital Asset)?
The tax applies to all "Virtual Digital Assets" which includes:
- All cryptocurrencies (Bitcoin, Ethereum, etc.)
- Stablecoins (USDT, USDC)
- NFTs (Non-Fungible Tokens)
- Any token generated through cryptographic means
- DeFi tokens, governance tokens, utility tokens
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How to Calculate Your Crypto Tax
The Simple Formula
What You CAN and CANNOT Deduct
Allowed Deduction
Cost of Acquisition
Only the original purchase price of the crypto asset
NOT Allowed
Trading Fees
Gas Fees
Internet/Hardware Costs
Losses from Other Trades
The Brutal Truth: No Loss Set-Off
This is the most painful part of India's crypto tax. Losses from VDA cannot be set off against any income, including:
- Against gains from other crypto trades
- Against salary income
- Against stock market gains
- Against any other income source
- Carried forward to future years
Example: The Loss Set-Off Trap
Understanding 1% TDS (Section 194S)
Since July 1, 2022, all VDA transfers are subject to 1% Tax Deducted at Source (TDS).
Key TDS Rules
| Category | Threshold | TDS Rate |
|---|---|---|
| Regular Users | Above ₹10,000/year | 1% |
| Specified Persons* | Above ₹50,000/year | 1% |
| Below Threshold | - | 0% |
*Specified persons: Individuals with income less than ₹1 crore from business or ₹50 lakh from other sources in previous year.
Important TDS Points
- TDS is NOT additional tax — It's advance tax that reduces your final liability
- Indian exchanges deduct automatically — WazirX, CoinDCX, etc. handle TDS
- P2P and foreign exchanges — Buyer must deduct and deposit TDS themselves
- Claim refund if excess — File ITR to claim TDS refund if more than liability
Pro Tip: TDS Refund
If you trade frequently but have net losses, TDS collected may exceed your actual tax liability. File ITR to get refund. Keep all transaction records.
How to File Crypto Tax in ITR
Step-by-Step Filing Process
Choose Correct ITR Form
Use ITR-2 (if no business income) or ITR-3 (if you have business income)
Download Transaction History
Get statements from all exchanges (WazirX, CoinDCX, Binance, etc.) and wallets
Calculate Gains for Each Trade
Selling Price - Cost of Acquisition = Gain (use FIFO method for cost basis)
Fill Schedule VDA
Report each VDA transaction with type, sale consideration, cost, and gain
Report TDS in Schedule TDS
Ensure TDS deducted matches with Form 26AS/AIS
Pay Balance Tax or Claim Refund
If TDS > Liability = Refund. If TDS < Liability=Pay before 31st July
Crypto-to-Crypto Trades
Yes, swapping BTC for ETH is a taxable event. You're "selling" BTC (taxed on gain) and "buying" ETH (new cost basis established).
Example: BTC → ETH Swap
Legal Tax Optimization Strategies
While aggressive tax avoidance is risky, here are legal strategies to optimize:
HODL Strategy
Tax is only on realized gains. If you don't sell, you don't pay. Long-term holding = tax deferral.
Gift to Family
Gifting crypto to spouse/parents in lower tax brackets. Note: Original cost basis transfers.
Timing Sales
Spread sales across financial years to manage cash flow and TDS refund timing.
Document Everything
Proper records of cost basis reduce disputes and ensure you claim full deductions.
- Hiding transactions (exchanges share data with IT dept)
- Using offshore exchanges to evade TDS
- Fake loss claims
- Not reporting crypto-to-crypto swaps
Common Mistakes to Avoid
- Not Reporting Losses: Even though losses can't be set off, you should still report them. Non-disclosure can trigger scrutiny.
- Ignoring Airdrops: Free tokens received (airdrops) are taxable. Cost = ₹0, so 100% is taxable gain.
- Forgetting Staking Rewards: Staking yields are income, taxable at 30% when received.
- Using Wrong Cost Basis: Use FIFO (First In, First Out) method consistently.
- Missing TDS on P2P: If buying P2P, YOU must deduct and deposit 1% TDS. Failure = penalty.
The Bottom Line
India's crypto tax regime is harsh — 31.2% with no loss set-off makes trading challenging. But compliance is essential:
- Exchanges report to Income Tax Department
- Blockchain analysis firms track wallets
- Penalties for tax evasion are severe (up to 200% + prosecution)
Your Compliance Checklist
- Track all transactions across all exchanges and wallets
- Calculate gain/loss for each trade using FIFO
- Report in Schedule VDA of ITR-2/ITR-3
- Ensure TDS matches Form 26AS
- Pay balance tax before July 31st
- Keep records for 6 years
Consider using crypto tax software like CoinTracker, Koinly, or ClearTax to automate calculations. The investment is worth the peace of mind.
Pay your taxes. Sleep well. Trade another day.