India taxes crypto harder than almost any other asset class. The combination of a 30% flat rate, no loss setoff, and 1% TDS on every sale makes the effective cost of frequent trading punishing. This post walks through Section 115BBH and Section 194S with worked examples for trades, airdrops, mining, gifts, and the reconciliation step most taxpayers skip.
The short version
- Section 115BBH: 30% flat tax on gains from any “Virtual Digital Asset” (VDA) — Bitcoin, Ethereum, altcoins, NFTs, tokenised securities. No slab benefit, no LTCG/STCG distinction. Plus 4% cess.
- No loss setoff, ever. VDA losses cannot be set off against VDA gains from a different coin in the same year, nor against any other income, nor carried forward. Each transaction that produces a gain is taxed standalone.
- Section 194S: 1% TDS at source on every transfer of a VDA (exceptions for very small trades — ₹50K / ₹10K thresholds depending on payer type). Your exchange withholds and deposits it to your PAN.
- No cost-of-acquisition tricks. Only the rupee purchase cost is deductible. Transaction fees, gas, network costs are NOT deductible. Indexation is NOT allowed.
- Airdrops, mining rewards, staking rewards are taxed when received at fair-market value at the time of receipt (income from other sources at slab). Then a separate 30% under 115BBH when you sell the coin — with your FMV-at-receipt as the acquisition cost.
Section 115BBH — the 30% math
The formula is mercifully simple:
Tax = max(0, Sale price − Cost of acquisition) × 30%
Plus 4% Health & Education Cess on the tax. So effective rate = 30% × 1.04 = 31.2%. If you’re in the surcharge band (income over ₹50L total), add 10% or 15% surcharge to the tax too — yes, surcharge applies to VDA income.
Worked example: clean BTC trade
- Bought 0.5 BTC at ₹30,00,000 per coin → cost ₹15,00,000.
- Sold 0.5 BTC at ₹40,00,000 per coin → sale price ₹20,00,000.
- Gain = ₹20L − ₹15L = ₹5,00,000.
- Tax under 115BBH: 30% × ₹5L = ₹1,50,000.
- Cess 4% → ₹6,000.
- Total: ₹1,56,000.
- TDS already withheld u/s 194S: 1% × ₹20L = ₹20,000.
- Balance payable with ITR: ₹1,36,000.
No-loss-offset rule (the brutal one)
Unlike equity or property, VDA losses are stranded. Three examples to make the pain concrete.
Example A: Winning coin + losing coin, same year
- BTC: bought at ₹20L, sold at ₹30L → gain ₹10L.
- Shitcoin: bought at ₹5L, sold at ₹1L → loss ₹4L.
- You might hope net taxable income is ₹6L. It is not. VDA loss cannot offset VDA gain from a different asset. Tax = 30% × ₹10L = ₹3L. The ₹4L loss is gone forever.
Example B: Hoping to offset against salary
- Salary: ₹15L.
- Crypto net loss: ₹3L (across all VDAs).
- Salary stays taxable at regular slabs — zero offset. The crypto loss cannot reduce other income.
Example C: Hoping to carry forward
- FY 2025-26: net crypto loss ₹5L. Cannot carry forward.
- FY 2026-27: net crypto gain ₹5L. Full 30% applies — ₹1.5L tax. The prior-year loss is useless.
Practical implication: VDA trading is only tax-efficient when you actually book gains. Stop-losses that realise losses permanently destroy tax value in a way that stop-losses on equity don’t. Many CAs advise holding losing VDAs rather than realising the loss.
Section 194S — the 1% TDS at source
Since 1 July 2022, every buyer of a VDA has to deduct 1% TDS when paying the seller. In practice this means:
- Centralised exchanges (CoinDCX, WazirX, CoinSwitch, etc.) automatically deduct 1% on every sell order. The rupee amount you get is 99% of the gross sale price.
- P2P / INR transfers — whoever pays INR is the buyer; they must deduct 1% and deposit via Form 26QE. Non-compliance is an offence under Section 271C.
- Crypto-to-crypto trades (e.g., USDT ↔ BTC) are covered too — even when no INR changes hands. Exchanges handle this by converting the 1% to rupee-equivalent based on the INR conversion rate at the time of trade.
Reconciling TDS with your tax return
At year-end, check Form 26AS (or AIS/TIS) for your aggregate 194S credit. The amount should match the sum of 1% × each VDA sale across all exchanges. Disputes:
- If 26AS is lower than expected, your exchange may not have deposited yet. File a query with the exchange’s compliance team.
- If 26AS is higher than expected, you may be double-counting crypto-to-crypto legs. The tax due is still computed on realised rupee gain, so over-deducted TDS becomes a refund.
Plug your gain + TDS into our Crypto Tax Calculator to compute net tax liability and expected refund.
Airdrops, mining, staking — taxed twice
This trips up almost everyone. A 100 USDT airdrop at ₹83/USDT is taxable income of ₹8,300 on the date you received it (at your slab rate as “income from other sources”). That ₹8,300 also becomes your cost of acquisition. When you later sell the USDT for ₹12,000, the ₹3,700 further gain is taxed at 30% under 115BBH.
Mining rewards, staking rewards, yield-farming emissions all follow the same two-tier pattern:
- At receipt: FMV × your slab rate (“income from other sources”).
- At sale: 30% × (sale − FMV at receipt) under 115BBH.
For a 30%-slab investor this is effectively double-dipped at 30% + 30%. For a 5% slab investor it’s 5% + 30%. Pick your airdrops accordingly.
Gifts and inheritance
- Gifts received above ₹50,000 in aggregate from non-relatives in a financial year are taxable at slab under Section 56(2)(x) — including VDA gifts. Relatives (spouse, parents, siblings) are exempt regardless of amount.
- Inheritance (via will or intestate succession) is exempt. The recipient’s cost of acquisition is the deceased’s original cost (carried over).
- The gift’s FMV at the date of gift becomes the recipient’s cost for future Section 115BBH computation on sale.
ITR filing — which schedule?
From AY 2023-24 onwards, every ITR-2 and ITR-3 carries a Schedule VDA. Fill in:
- Date of acquisition + cost
- Date of transfer + sale consideration
- Income head: Section 115BBH
- TDS credit from Form 26AS
ITR-1 (Sahaj) doesn’t have Schedule VDA — if you have any crypto transactions, you must use ITR-2 or ITR-3 regardless of income level.
Common mistakes that cost money
- Claiming transaction fees as cost. Not allowed under 115BBH. The Income Tax Department has held this explicitly.
- Netting losses across coins. Tax each gain separately; ignore losses for tax purposes.
- Forgetting crypto-to-crypto is taxable. Swapping BTC for ETH is a disposal of BTC and an acquisition of ETH — taxable event for the BTC side.
- Missing the ITR-2 upgrade. Filing ITR-1 with any crypto transaction is a defective return (Section 139(9) notice).
- Not reporting foreign-held VDA in Schedule FA. VDAs held on foreign exchanges (Binance, Coinbase) must be reported in Schedule FA regardless of tax liability. Non-disclosure triggers Black Money Act penalties.
Run your own numbers
Our Crypto Tax Calculator handles gains, TDS reconciliation, airdrop FMV, and mining rewards. For a comprehensive return view, combine with the Income Tax Calculator to see total liability across salary + VDA + other income. If you’re also computing equity or property gains, the Capital Gains Calculator runs the post-Budget-2024 12.5% / 20% rules.
Sources
- Income Tax Act 1961 — Section 115BBH (inserted by Finance Act 2022); Section 194S (inserted 1-Jul-2022); Section 56(2)(x).
- CBDT Circular 13/2022 — clarifications on Section 194S scope and exchange compliance.
- CBDT Notification 74/2022 — Form 26QE for non-exchange VDA buyers.
- ITR-2 / ITR-3 Schedule VDA instructions, AY 2023-24 onwards.