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Crypto Law/Level VIII · Around the world/8.3 Asia and the Gulf/Lesson 7

India: the 30% tax and 1% TDS

How India went from a banking ban struck down by its Supreme Court to a punishing flat tax, a 1% deduction on every transfer, money-laundering registration for exchanges, and a new Income-tax Act from April 2026.

Education, not legal, tax or investment advice. Crypto law differs between countries and states and changes often. Check the current rules where you live with a qualified lawyer or tax adviser before you act.

The lean path

The cheapest, lowest-tax, simplest and most private route the law allows, best first. Each step names the rule it rests on and the condition that keeps it lawful.

  1. India has no low-tax or holding-period route: income from transferring a virtual digital asset is taxed at 30% plus surcharge and cess under section 115BBH, with only cost of acquisition deductible. Catch: losses cannot be set off or carried forward.
  2. The 1% TDS under section 194S is not an extra tax: it is credited to the seller and appears on the annual tax statement. Catch: you must reconcile it with exchange records and claim it in your return.
  3. Use an exchange registered with FIU-IND under the PMLA, which deducts TDS and gives a clear record. Catch: offshore platforms that skip TDS do not reduce tax owed, and FIU-IND fined Binance Rs 18.82 crore in 2024.
  4. Holding without transferring triggers no tax, because section 115BBH taxes income from transfer. Catch: from 1 April 2026 the Income-tax Act 2025 renumbers these rules, so cite the new sections for 2026-27 onwards.

MaterialsThe Income-tax Department’s page on taxation of virtual digital assetsCBDT Circular No. 13 of 2022 (22 June 2022), guidelines on section 194SThe annual tax statement (Form 26AS or Annual Information Statement) showing tax deducted on crypto salesLesson 7.2.7, on CARF and international exchange of crypto data

Wonder

  1. Why can an Indian trader not offset a loss on one coin against a gain on another?
  2. What happens to the 1% deducted on every crypto sale?
  3. Is it legal for Indians to use an offshore exchange?

Explore

  1. India’s crypto law began with a ban that failed in court. A Reserve Bank of India (RBI) circular dated 6 April 2018 barred the entities it regulates, chiefly banks, from dealing in virtual currencies or serving businesses that did. Exchanges lost banking access. The Internet and Mobile Association of India challenged it, and on 4 March 2020 a three-judge bench of the Supreme Court set the circular aside in Internet and Mobile Association of India v Reserve Bank of India, (2020) 10 SCC 274. The court accepted that the RBI had power to act but found the measure disproportionate. India has never since passed a law banning or fully regulating crypto trading.
  2. Instead, India used tax. The Finance Act 2022 defined ‘virtual digital asset’ (VDA) in section 2(47A) of the Income-tax Act 1961, covering cryptographically generated information, code, numbers or tokens and non-fungible tokens, but not Indian or foreign currency. Section 115BBH taxes income from transferring a VDA at a flat 30%, plus surcharge and cess. Under section 115BBH(2), only the cost of acquisition may be deducted, so fees and other expenses are not; a loss on a VDA cannot be set off against income computed under any provision of the Act, and it cannot be carried forward. The result is a tax on each winning trade with no relief for losing ones.
  3. The second tool is tax deducted at source (TDS). Section 194S, in force from 1 July 2022, requires the buyer, or in practice the exchange, to withhold 1% of the consideration when paying a resident for a VDA. Thresholds of Rs 50,000 a year for specified persons, such as individuals below a turnover limit, and Rs 10,000 for others apply under the 1961 Act. The Central Board of Direct Taxes issued guidelines on how exchanges handle this in Circular No. 13 of 2022 dated 22 June 2022. The deducted tax is credited to the seller and appears on the annual tax statement, but it drains cash from frequent traders.
  4. Many traders moved to offshore exchanges that did not deduct TDS, so India turned to money-laundering law. In March 2023 the government brought VDA service providers under the Prevention of Money-laundering Act 2002 (PMLA), requiring them to register with the Financial Intelligence Unit-India (FIU-IND) and meet customer-checking and reporting duties. In December 2023 FIU-IND issued show-cause notices to nine offshore exchanges, including Binance. On 19 June 2024 its director, acting under section 13 of the PMLA, fined Binance Rs 18.82 crore. For the user, tax on gains is due wherever the trade happened, and an offshore platform’s failure to deduct TDS does not reduce it.
  5. Indian users also learned how far their claims can travel. On 18 July 2024 the Indian exchange WazirX lost about $234.9 million in digital assets in a hack linked to North Korea’s Lazarus Group. Because its group entity Zettai Pte Ltd was incorporated in Singapore, the losses were dealt with under Singapore’s restructuring law, and the Singapore High Court sanctioned a creditor-approved scheme on 13 October 2025 (lesson 8.3.4). The exchange resumed operations on 24 October 2025. For Indian customers, the forum that decided their recovery was a foreign court, not an Indian one, which is worth knowing before choosing a platform.
  6. What changed most recently is the statute itself. The Income-tax Act 2025 received presidential assent on 21 August 2025 and replaced the 1961 Act from 1 April 2026. It re-codifies the VDA rules under new section numbers, and commentators differ on details such as how TDS thresholds carried over, so check the new text before citing a section for 2026-27 onwards. Section 285BAA, added to the 1961 Act, requires specified reporting entities to file statements of crypto-asset transactions; compare the international CARF regime in lesson 7.2.7. A practical check: reconcile every 1% deduction on the annual tax statement with exchange records, and keep cost records for every VDA.

Key facts

  • On 4 March 2020 India’s Supreme Court set aside the RBI’s 6 April 2018 circular in Internet and Mobile Association of India v Reserve Bank of India.
  • Section 115BBH of India’s Income-tax Act 1961 taxes income from transferring a virtual digital asset at 30%, allowing no deduction except cost of acquisition.
  • Section 194S of India’s Income-tax Act 1961 requires 1% tax deduction at source on payments for virtual digital assets from 1 July 2022.
  • India brought virtual digital asset service providers under the Prevention of Money-laundering Act in March 2023.
  • On 19 June 2024 FIU-IND imposed a penalty of Rs 18.82 crore on Binance under section 13 of the PMLA.
  • India’s Income-tax Act 2025 received presidential assent on 21 August 2025 and took effect on 1 April 2026.

Exercise nine, six, three, one

9CollectList up to 9 crypto transactions an Indian resident might have in a year, real or imagined, including any on offshore platforms.
6ClusterSort them into 6 groups: profitable sales, loss-making sales, crypto-to-crypto swaps, gifts received, transactions with 1% TDS, and transactions with no TDS.
3DistillReduce the 6 to 3 points where India’s rules most change the tax owed compared with ordinary capital gains.
1CrystallizeWrite 1 sentence explaining why a trader in India can owe 30% tax in a year in which they lost money overall.

Fact check

Dates, figures and claims checked against the published sources listed below.

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