Crypto Tax in India 2026: 30% Tax + 1% TDS Explained Simply

Ravi bought 2 lakh worth of Ethereum in 2023. By January 2026, it was worth 5 lakh. He also put 1 lakh into a smaller token that crashed to 20,000. He thinks his net profit is 2.2 lakh (3 lakh gain minus 80,000 loss). He is wrong. Under Indian tax law, Ravi owes tax on the full 3 lakh gain. The 80,000 loss cannot offset it. His tax bill: 93,600.

India's crypto tax rules, introduced in Budget 2022 under Section 115BBH, are arguably the harshest among major economies. Here is how they work.

The 30% Flat Tax: No Exceptions

Every gain from virtual digital assets (VDA) is taxed at 30%. Flat rate. No progressive slabs. Whether you earn 10,000 or 10 crore, the rate is 30%. Plus 4% health and education cess, making the effective rate 31.2%.

No holding period distinction. Unlike equity where you get 12.5% LTCG after 12 months, crypto gains are always 30% whether you held for a day or a decade.

The only deduction allowed is cost of acquisition. You cannot deduct trading fees, internet charges, electricity costs, or any other expense. Just what you originally paid for the asset.

What Counts as a Virtual Digital Asset?

The definition under Section 2(47A) is broad: any information, code, number, or token generated through cryptographic means. This covers Bitcoin, Ethereum, every altcoin, stablecoins, NFTs, wrapped tokens, liquidity pool tokens, and governance tokens.

CBDCs (Central Bank Digital Currency, i.e., the Digital Rupee) are explicitly excluded. Gift cards and loyalty points are also excluded unless they represent a crypto asset.

The No-Loss-Set-Off Rule: The Harsh Part

This is what catches people. Under Section 115BBH(2), losses from VDAs cannot be set off against any other income. Not salary. Not business income. Not capital gains on shares. Not even against gains from a different crypto transaction in the same year... actually, same-year VDA gains CAN offset same-year VDA losses. But cross-asset offset is completely blocked.

Wait, let me be precise. You CAN set off losses from one VDA against gains from another VDA within the same financial year. So if you profit 3 lakh on Bitcoin and lose 1 lakh on Ethereum in the same year, your taxable VDA gain is 2 lakh. But if the Ethereum loss happened in the previous year, you cannot carry it forward and set it off.

Actually, carry forward of VDA losses is a grey area. The law under 115BBH says losses from VDA transfer cannot be set off against any other income. Some tax experts argue this prevents carry forward entirely. Others argue general carry forward provisions still apply. Conservative approach: assume no carry forward benefit until clarity emerges.

The 1% TDS: Section 194S

Every time you sell, trade, or transfer a VDA, 1% TDS applies if the transaction value exceeds Rs 10,000 in a financial year. For specified persons (individuals and HUFs with turnover below 1 crore), the threshold is Rs 50,000.

On Indian exchanges (WazirX, CoinDCX, CoinSwitch), TDS is auto-deducted. You sell 1 lakh worth of Bitcoin, you receive 99,000. The exchange deposits 1,000 with the government as TDS on your behalf.

For P2P transactions and trades on international exchanges, you are responsible for deducting and depositing TDS yourself. Non-compliance attracts penalties under Section 271C (equal to the TDS amount not deducted).

The TDS is not an additional tax. It is an advance payment against your final 30% liability. When you file your ITR, the TDS credit reduces your total tax payable.

How Specific Transactions Are Taxed

Buying crypto with INR: No tax event. You are just acquiring an asset.

Selling crypto for INR: Taxable. Gain = selling price - cost of acquisition. 30% tax on the gain.

Swapping one crypto for another (e.g., BTC to ETH): Taxable. The swap is treated as a sale of BTC at market price + purchase of ETH. Gain on BTC = market value at swap time minus BTC's cost of acquisition.

Staking rewards: Taxable as income from other sources at your slab rate when received. When you later sell the staked tokens, the cost of acquisition is the fair market value at the time you received the staking reward.

Airdrops: Taxable as income from other sources at slab rate (not 30%) when received, if value exceeds Rs 50,000 from non-relatives. Cost of acquisition for future sale is the value at receipt.

Mining: Income from mining is taxable as business income or income from other sources (depending on scale). When mined tokens are sold, the cost basis is the fair market value at the time of mining.

Gifting Crypto: The Surprise Tax

If you receive crypto as a gift and its fair market value exceeds Rs 50,000, the ENTIRE value (not just the excess above 50K) is taxable as income from other sources at your slab rate. This is under Section 56(2)(x).

Exception: gifts from relatives (spouse, siblings, parents, grandparents, and their spouses) are exempt. Gifts on the occasion of marriage are exempt. Gifts under a will or inheritance are exempt.

This means if your friend sends you 1 lakh worth of Bitcoin as a birthday gift, you owe approximately 30,000 in tax on receipt, plus 30% on any gain when you sell it later. Harsh double taxation.

How to Report Crypto in Your ITR

Use Schedule VDA in ITR-2, ITR-3, or ITR-4. For each transaction, report: date of transfer, date of acquisition, cost of acquisition, sale consideration, and the resulting gain.

If you trade frequently, use a crypto tax tool like KoinX, ClearTax, or CoinTracker to auto-import transactions from exchanges. Manually tracking hundreds of trades is impractical and error-prone.

Check Form 26AS and AIS (Annual Information Statement) on the income tax portal. Indian exchanges report your transactions. If there is a mismatch between what the exchange reported and what you declared, expect a notice.

The DeFi Grey Areas

Indian tax law has not specifically addressed DeFi activities. Here is the conservative interpretation:

Yield farming: Rewards taxable when received. Each harvest is a taxable event.

Liquidity provision: Adding to an LP pool might be treated as a swap (taxable). Impermanent loss is not recognized as a deductible loss.

Wrapping tokens (ETH to WETH): Technically a transfer, potentially taxable. In practice, the gain is zero if wrapped at the same value.

Bridging across chains: Similar to wrapping. Technically a transfer but with zero gain.

The safest approach: treat every on-chain movement that changes the token type as a taxable event. Maintain detailed records of every transaction.

Can You Avoid Crypto Tax by Using Foreign Exchanges?

No. Indian tax applies to your global income regardless of where the exchange is based. If you are an Indian tax resident and trade on Binance (international), you owe 30% on gains and must self-deduct 1% TDS.

Not reporting foreign crypto holdings can trigger penalties under FEMA and the Black Money Act. The income tax department has data-sharing agreements with international exchanges and blockchain analytics firms.

Planning Strategies Within the Rules

Use the 1.25L LTCG exemption elsewhere. Since crypto gains cannot be offset by equity losses (or vice versa), ensure you are utilizing your 1.25 lakh LTCG exemption on equity fully. These two buckets are completely separate.

Time your VDA-to-VDA swaps. If you want to switch from Bitcoin to Ethereum, timing the swap in a year when you also have VDA losses reduces net taxable gains.

Hold, do not trade. There is no LTCG benefit, but frequent trading generates frequent taxable events and 1% TDS drains (which reduce your trading capital even though TDS is refundable). Fewer transactions = fewer complications.

Maintain impeccable records. Download transaction histories from every exchange quarterly. Store wallet addresses, transaction hashes, and screenshots of DeFi positions. In an audit, you need to prove cost of acquisition for every asset.

My Take

The 30% flat tax with no loss offset is punitive. It discourages casual speculation, which may be the government's intent. For serious crypto investors, the rules are workable if you maintain records and file accurately.

If you are investing less than 5 lakh in crypto, the tax friction (30% on gains, no loss offset, 1% TDS reducing trading capital) means you need substantially higher returns than equity to justify the allocation. A Nifty 50 index fund with 12.5% LTCG is far more tax-efficient for most people.

Calculate your exact crypto tax liability using our income tax calculator, and use the capital gains calculator to compare crypto vs equity tax efficiency.