A crypto trader did what many beginners dream about. He turned ₹40,000 into ₹7 lakh through leverage trading in just a few months. But instead of withdrawing the profits, he kept trading, hoping to grow them further.
A few months later, almost everything was gone.
As of last year, his portfolio was worth barely ₹20,000. But the tax bill is based on the ₹7 lakh profit he booked before the losses began. As the only earning member in his family, he now faces a tax liability of more than ₹2 lakh on money he no longer has.
His story highlights one of the least understood parts of India’s crypto tax rules: once you book a profit, the tax liability is created. Losing that money later does not make the tax disappear.
Why the Tax Still Exists
The Redditor’s situation is more common than many traders realise. He booked substantial profits, but instead of withdrawing them, he continued trading with the same capital. By the time the market turned, most of those gains had disappeared.
That doesn’t undo the tax liability.
Under Section 115BBH, the tax is based on the gains you realise when you dispose of a crypto asset. If those gains are later lost in new trades, the earlier tax liability doesn’t disappear.
This often catches traders by surprise because they focus on their current portfolio value, not on the profits they’ve already realised during the year. A portfolio may shrink dramatically, but the tax is calculated on the taxable events that occurred earlier rather than the balance left at the end of the year.
Most exchanges show only your current portfolio value. They don’t tell you how much tax may have already accumulated on past realised gains. That’s why many traders don’t realise they need to set aside money for taxes while they’re still actively trading.
This Reddit post reflects a structural outcome of how India’s crypto tax law intersects with how most retail traders actually behave.
He started in mid-2023 with small amounts. Through leveraged trades, he grew his portfolio to ₹7 lakh by late 2024. When he booked the profits in December, he didn’t cash out. He left the money on the exchange and kept trading. From February 2025, the market turned against him. By the time he shared his story on Reddit, his portfolio had fallen to just ₹20,000.
Worried about the tax bill, the trader wrote, “I have no idea where I’ll get the money to pay the tax.”
His tax liability, calculated on the gains he booked in December, exceeds ₹2.1 lakh.
What Section 115BBH Actually Does to the Maths
Most investors assume tax is calculated on what remains at the end of the year. Under Section 115BBH, tax is triggered when a profit is realised, not when the year ends, not when the money is withdrawn, and not when the ITR is filed. Once a profitable trade closes, the liability exists. What happens to the proceeds after that is legally irrelevant.
Here is what his exchange showed him in December, and what it should have shown alongside it.
Metric | What the exchange displayed | What also existed |
Portfolio value | ₹7,00,000 | ₹7,00,000 |
Realised gains (FY to date) | ₹7,00,000 | ₹7,00,000 |
Tax liability at 30% | Not displayed | ₹2,10,000 |
4% cess on tax | Not displayed | ₹8,400 |
Net capital after tax | Not displayed | ₹4,81,600 |
The moment a profitable trade is finalised, whether in INR, USDT, another token, or any other asset, a tax liability crystallises. What the trader does with the proceeds afterward, whether they reinvest them, lose them in the next trade, or hold them indefinitely, is irrelevant to the liability that was created at the point of closing.
Two features of Section 115BBH make this worse for active traders, regardless of when their profits and losses occur:
1. Losses cannot be adjusted: If you make a profit on one crypto transaction and a loss on another, the loss generally cannot reduce the tax payable on the gain. Each taxable transaction is considered separately under Section 115BBH.
2. Losses cannot be carried forward: Unlike many other investments, crypto losses cannot be carried forward to future years.
The Number His Exchange Never Showed Him
When this trader’s portfolio hit ₹7 lakh in December 2024, his exchange showed one number: ₹7,00,000 but it did not show him that roughly ₹2.1 lakh had already become a tax liability.
Those are two very different numbers, and most retail traders never see the second one until they sit down to file their ITR.
If exchanges also displayed the estimated tax that had accrued on realised gains, traders would have a clearer picture of how much of their profits may eventually go towards taxes before deciding to reinvest.
This is the structural problem. Exchanges are not tax tracking tools. They show portfolio values. A trader who relies on the portfolio balance to decide how much capital they are working with is, without knowing it, treating money that belongs to the government as their own.
How Leverage Makes this Structurally Worse
Leverage is not just a multiplier on gains. It is a multiplier on the tax math, and for retail traders who reinvest every profitable close into the next position, the compounding effect of this across a financial year is larger than most people intuitively grasp.
Each leveraged position that closes in profit creates a taxable event at the leveraged size, not the margin size. When those gains are immediately reinvested, as they almost always are in active trading, there is no natural moment of separation between profit and capital. The ₹7 lakh goes back into the market as one undifferentiated pool. The ₹2.1 lakh in tax liability does not go back with it. It is fixed, accumulating, and invisible until March.
Consider what this looks like across a typical active trader’s year.
Trading Period | Net Result | Tax Liability Under Section 115BBH | Trader’s mental model |
July to September | ₹2,50,000 in gains | ₹75,000 owed | “Good start to the year” |
October to December | ₹4,50,000 in gains | ₹1,35,000 owed | “Strong run, staying in” |
January to March | ₹3,20,000 in losses | No relief | “Bad quarter, will recover” |
Year-end position | Net: ₹3,80,000 up | ₹2,10,000 owed | “I made money overall” |
The tax bill is ₹2.1 lakh. The net gain is ₹3.8 lakh. On paper, that works. The problem is that many traders reinvest their profits instead of setting money aside for taxes. If those later trades result in losses, the portfolio shrinks; but the earlier tax liability doesn’t.
What Happens If You Cannot Pay
This is the question the Redditor actually asked, and it deserves a direct answer rather than a soft pivot.
If the tax remains unpaid, interest and recovery proceedings can follow. The Income Tax Department may issue a demand notice requiring payment. In genuine hardship cases, taxpayers can request instalments under Section 220(3) through the assessing officer.
How KoinX Helps You Track Tax While You Trade
Getting started is simple: sign up with KoinX, and once you’re in, go to the Integrations tab to connect your wallets and exchanges.
The specific problem this trader had is one of visibility. He never saw the tax liability growing alongside his portfolio because his exchange was not designed to show it.
This is the gap that KoinX addresses in real time. Sign up on KoinX, go to the Integrations page, and connect the exchanges where you trade, whether it’s Binance, CoinDCX, WazirX, Bybit, or another platform.
Once your wallets and exchanges are integrated, KoinX goes beyond just tax reporting; it analyses your entire portfolio in one place and surfaces insights on your holdings, transaction patterns, and overall health, helping you stay on top of your crypto activity with clarity.
KoinX Insights helps you track realised gains and portfolio performance before tax season arrives.
KoinX automatically imports your complete transaction history, converts every realised trade into its historical INR value, and calculates the tax that has accumulated throughout the financial year.
Instead of waiting until ITR season to discover a large tax bill, you can monitor:
- realised gains
- estimated tax liability
- remaining post-tax portfolio value
If this trader had tracked his December profits through KoinX, he would have known that more than ₹2 lakh of those gains had already become a tax liability before placing another leveraged trade.
KoinX’s Income Summary Report tracks realised gains quarter by quarter.
KoinX’s unified portfolio dashboard, which consolidates spot, DeFi, and NFT holdings in one view, surfaces the wallet-wise P&L contribution and the per-transaction gain/loss that respects the current tax settings. The number it produces is not the portfolio value. It is the net-of-tax portfolio value, which is the number the trader is actually working with, whether they see it or not.
Connect your exchange and see your real-time crypto tax liability on KoinX.
For a full understanding of how India taxes crypto at every stage, the crypto tax India guide covers the complete framework. For anyone who has already filed and suspects an error, the process for filing a revised return under Section 139(5) is the right starting point.
