Understanding TDS on Crypto Transactions in India: A Complete Tax Guide

For cryptocurrency investors in India, navigating the tax landscape has become increasingly important. One crucial mechanism that affects almost all crypto traders is TDS on crypto transactions, which works alongside India’s broader taxation framework. This comprehensive guide breaks down how India taxes digital assets, what TDS means for your investments, and how to ensure full compliance with tax authorities.

How TDS on Crypto Works: The 1% Deduction Explained

One of the most significant developments in India’s crypto taxation is the implementation of Tax Deducted at Source (TDS). When you trade or transfer digital assets on any exchange—whether domestic or international—a 1% TDS is automatically deducted from your transaction value if it exceeds ₹10,000 in a financial year.

This means that if you sell Bitcoin for ₹50,000, the exchange will deduct ₹500 (1% of ₹50,000) and remit it directly to the government. The key aspect of TDS on crypto is that it applies to both buying and selling transactions, ensuring transparency and creating a direct link between your trades and tax authorities. This 1% TDS is levied at the point of transaction itself, making it an immediate withholding tax rather than something you pay later.

The threshold mechanism is important to understand: once your cumulative crypto transactions cross ₹10,000 in a financial year, every subsequent transaction becomes subject to the 1% deduction. This applies universally across all platforms, and exchanges are legally mandated to implement this deduction.

The 30% Profit Tax and Health Cess

Beyond TDS, the primary tax burden on crypto investors comes from the profits themselves. Any gains you make from trading, staking, or selling cryptocurrencies are subject to a flat 30% tax rate—one of the highest in India’s income classification system. This applies uniformly regardless of whether you held the asset for days or years.

In addition to the 30% base tax, there’s a 4% health and education cess applied on top of the tax amount, effectively bringing the total burden to approximately 31.2%. For example, if you earn ₹100,000 in crypto profits, you’ll owe ₹30,000 in tax plus ₹1,200 in cess, totaling ₹31,200.

The tax category depends on your transaction pattern: active traders typically fall under “Income from Business and Profession,” while occasional sellers are classified under “Income from Other Sources.” In both cases, the 30% rate applies equally.

Reporting Crypto Transactions: What Indian Investors Must Know

Declaring your crypto activities on India’s Income Tax e-filing portal is mandatory, and detailed record-keeping is essential. When you file your tax return, you must provide specifics for every transaction: purchase dates, sale prices, quantities bought or sold, and associated fees paid to exchanges.

This comprehensive reporting requirement exists because the government wants complete transparency about all crypto activities. The Income Tax department cross-references exchange records with filed returns, so discrepancies can trigger audits or penalties.

Filing requirements apply even if you’ve incurred losses, as we’ll discuss next. Failure to report crypto transactions accurately can result in penalties up to 10% of unreported income or scrutiny by tax officials.

Crypto Losses and Income Offset Rules in India

One of the most restrictive aspects of India’s crypto tax framework is the inability to use losses for tax relief. If you trade cryptocurrencies and incur losses, you cannot offset these losses against other income sources like salary, rental income, or business profits.

Additionally, crypto losses cannot be carried forward to future financial years to reduce subsequent tax liabilities. This “no set-off” rule means that if you lose ₹50,000 trading altcoins in one year, that loss provides no tax benefit whatsoever. Your taxable income from other sources remains unchanged.

This restriction significantly impacts investors who experience volatility. It’s crucial to factor this into your investment strategy and understand that crypto losses, unlike traditional investments in stocks or mutual funds, provide no tax shield.

Staking, Mining, and Other Crypto Income

If you earn cryptocurrency through staking, mining, or lending protocols, this income is equally taxable at 30%. The tax is calculated on the fair market value of the crypto you receive at the moment of earning, not at the price when you later sell it.

For instance, if you stake your crypto and earn 1 Ethereum worth ₹200,000 at that moment, you owe 30% tax on ₹200,000 immediately, even if Ethereum’s price drops before you sell. This creates a timing risk that many investors overlook.

Gift Tax Considerations for Crypto Assets

Receiving cryptocurrency as a gift carries tax implications if the gift value exceeds ₹50,000 in a financial year. The recipient becomes liable for tax on the gift’s fair market value, which is classified as “income from other sources” and taxed accordingly.

Gifts below ₹50,000 remain tax-free, but anything above this threshold triggers taxation for the recipient, not the gifter. Keep detailed records of gift transactions and their valuation to support your tax filing.

Key Compliance Takeaways

India’s crypto tax structure demands careful attention from all investors. The combination of TDS on crypto transactions, the 30% profit tax, and stringent reporting requirements creates a comprehensive tracking system. Remember: losses cannot reduce your taxable income, and all transactions must be meticulously documented.

To stay compliant and avoid penalties, maintain detailed records of every crypto transaction—dates, amounts, prices, and exchange information. Report all activities accurately on the Income Tax e-filing portal, and consider consulting a tax professional familiar with crypto-specific regulations. India’s regulatory framework continues evolving, so staying informed about TDS on crypto rules and broader policy changes remains essential for any serious digital asset investor in the country.