Crypto Tax in India: Why Your Gains Are Taxed Differently

Bitcoin up 80% this year. You made Rs. 4 lakh on your Rs. 5 lakh buy. Under section 115BBH, you pay 30% flat. Rs. 1.2 lakh. You cannot set off other capital losses against it. You cannot carry-forward crypto losses. And section 194S means the exchange already withheld 1% TDS on every sell transaction. This is the harshest tax regime in the Indian code, by design. The government's position is that VDAs are speculative and should not enjoy any concessional treatment. If you still want exposure, understand the rules cold.

By the end, you will know exactly how VDAs (Virtual Digital Assets) are taxed, the 194S TDS cap, the airdrop / gift edge cases that trap casual traders, and the Schedule VDA reporting.

Section 115BBH (Budget 2022)

Any income from transfer of VDA (crypto, NFT, but excluding e-rupee and certain in-game assets) is taxed at a FLAT 30% + surcharge (if applicable) + 4% health-and-education cess. No deduction allowed except the cost of acquisition. No brokerage, no gas fees, no exchange costs. No set-off against any other income head, capital or otherwise. No carry-forward of VDA losses to future years. A Rs. 5L loss in Year 1 and a Rs. 5L gain in Year 2 = Rs. 1.5L tax on the gain with zero credit for the prior loss.

The "no set-off" rule is uniquely hostile. Even speculative business losses under section 73 can be set off against speculative business gains. VDA losses stand alone, deliberately isolated. This is a policy signal: the government wants VDA trading to be economically unattractive unless genuinely profitable.

Section 194S. 1% TDS on every transfer

Since July 2022, Indian exchanges (CoinDCX, WazirX, CoinSwitch) deduct 1% TDS on the gross transfer VALUE (not the gain. VALUE) above Rs. 10,000 per year per exchange (Rs. 50,000 for non-audit individuals). The TDS is credited to your PAN via the exchange's 26Q quarterly filing. At ITR time, the TDS is adjustable against your 30% VDA liability; excess is refundable.

For a high-frequency trader with Rs. 10 crore turnover and Rs. 50 lakh profit, TDS deducted would be Rs. 10 lakh (1% of Rs. 10 crore), while tax due is only Rs. 15 lakh (30% of Rs. 50 lakh). TDS is absorbed into the liability, no problem. For a loss-making trader: TDS of Rs. 10 lakh is fully refundable at ITR. But only after filing, which is 9-12 months after the transaction. The cash-flow drag is real.

Schedule VDA. Mandatory reporting

Every VDA transaction must be reported in Schedule VDA of ITR-2 or ITR-3: date, quantity, acquisition cost, sale price, TDS. The AIS auto-populates exchange transactions from July 2022 onward. Mismatches trigger 143(1) intimations within 6-9 months of filing. Cash-deal-only traders (peer-to-peer via Telegram / Discord / USDT wallets) get no auto-population; the reporting burden is fully on them, and non-reporting is easier to prove than non-occurrence.

Peer-to-peer 194S

If you sell BTC to a friend via DEX (Uniswap, PancakeSwap) or even a plain wallet transfer, technically the BUYER (or the platform) is responsible for deducting 1% TDS. Most retail peer-to-peer traders miss this entirely; the department is ramping up scrutiny using blockchain analytics firms. The risk: retroactive 194S assessments + penalty + interest.

Peer-to-peer transfers still carry 194S obligation

Selling via DEX, wallet-to-wallet, or USDT-stablecoin routes does not escape 194S. The buyer/platform is the payer; if they default, both parties can be pursued. Department is actively tracking high-volume wallet addresses using blockchain analytics.

Airdrops and gifts. Two taxable events

Receiving an airdrop or gift VDA: taxed at market value as "income from other sources" at slab rate in the year of receipt (section 56(2)(x) for non-relative gifts > Rs. 50,000). On subsequent sale, gain = (sale price - receipt-day FMV) taxed at flat 30% under 115BBH. Two events, both potentially significant.

NFTs vs cryptocurrencies

Both are VDAs under Budget 2022 definition. NFTs previously had informal treatment as "artwork" to now unambiguously in the 115BBH regime. CBDT Notification specifies in-game rewards, airdropped loyalty tokens, and metaverse assets all qualify as VDAs. Only digital representations of fiat currency (RBI's e-rupee / CBDC) are outside.

Key Takeaways

Section 115BBH: flat 30% + 4% cess, no deduction except cost.
Section 194S: 1% TDS on gross transfer above Rs. 10k / Rs. 50k per year.
VDA losses do not offset any other income; no carry-forward ever.
Airdrops / gifts taxed at slab on receipt; then 30% on sale. Two events.
Schedule VDA in ITR-2 / ITR-3 is mandatory; AIS reconciliation enabled for exchange trades.