Since July 2022, Indian crypto investors have been subject to a 1% Tax Deducted at Source (TDS) on every transfer of crypto assets. This rule, introduced under Section 194S of the Income-Tax Act, has left many unsure about who is responsible for deducting TDS, when it applies, and how to calculate it correctly.
In this guide, we break down exactly how the 1% TDS on Virtual Digital Assets works in India. Whether you’re trading through exchanges, using P2P platforms, or swapping crypto for crypto, we’ll explain when the tax applies and what steps you need to take to stay compliant.
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What Is 1% TDS on Crypto in India?
TDS, or Tax Deducted at Source, is a mechanism through which tax is collected at the time of a transaction. In the case of crypto, a new provision under Section 194S of the Income-Tax Act mandates that a 1% TDS be deducted whenever a Virtual Digital Asset (VDA) is transferred. This rule applies regardless of whether the transaction results in a profit or a loss.
The TDS is deducted on the total value of the transaction, not just the gain portion. So, even if you’re selling crypto at a loss, the tax still applies. This TDS is separate from the 30% tax on crypto gains and is primarily aimed at helping the government keep track of crypto transactions across platforms.
When Did the 1% TDS on Crypto Become Applicable?
The 1% TDS on crypto transactions came into effect on 1 July 2022. This provision was introduced as part of the Finance Act, 2022, and applies to all transfers of Virtual Digital Assets, whether for fiat currency or another crypto asset.
If a crypto trade was placed before 1 July but executed after this date, the TDS provision still applies. This rule ensures that all qualifying transactions from 1 July onwards are subject to TDS, regardless of the order placement date.
Read More: How Are Crypto Profits Taxed In India?
Who Is Responsible for Deducting the 1% TDS?
The responsibility for deducting TDS on crypto transactions depends on how and where the trade takes place. Here’s who deducts TDS on VDA transactions under different scenarios:
Trades On Indian Exchanges
When transactions take place on Indian exchanges, the exchange itself is responsible for deducting the 1% TDS on behalf of the user. This simplifies compliance for both buyers and sellers, as the platform handles tax deduction and payment directly to the Central Government.
Trades On Foreign Exchanges Or DEXs
For trades on foreign exchanges or decentralised platforms, there is no automatic TDS deduction. In such cases, the responsibility shifts to the buyer, who must deduct and deposit the 1% TDS. This becomes practically challenging, especially on non-compliant or anonymous platforms.
Buyer’s Responsibility In P2P Or Crypto-For-Crypto
When dealing in peer-to-peer trades or crypto-for-crypto swaps, the buyer is required to deduct 1% TDS. The deduction must be made based on the fair market value of the crypto used as payment, converted to INR on the date of transaction.
Note: Sellers are generally not required to deduct TDS. However, they should be aware of whether the buyer or platform is fulfilling the obligation. Sellers can later claim the deducted TDS when filing their income tax return, using Form 26AS as proof. |
What Are the Threshold Limits for TDS on Crypto?
The Income Tax Act provides certain annual thresholds below which TDS on crypto transactions does not apply. These limits vary based on the type of taxpayer and their filing status.
Threshold for Individuals and HUFs
For individuals and Hindu Undivided Families (HUFs) not liable to tax audit, the 1% TDS applies only if the total value of crypto transactions exceeds INR 50,000 in a financial year. Below this limit, no TDS is required to be deducted or deposited.
Threshold for Others (Businesses, Firms, etc.)
For businesses, firms, or individuals subject to tax audit under the Income Tax Act, the TDS threshold is lower. If the total crypto transaction value exceeds INR 10,000 in a financial year, 1% TDS becomes applicable and must be deducted by the responsible party.
Scenarios Where 1% TDS on Crypto Is Applicable
TDS applicability varies based on how the crypto transaction is executed. Below are four common scenarios that explain how the 1% deduction works in different transaction types.
Buying Crypto With INR
When you purchase crypto using Indian Rupees, no TDS is required to be deducted. Since this transaction involves acquiring a Virtual Digital Asset and not transferring it, the tax provision under Section 194S does not apply in this case.
Selling Crypto For INR
In this scenario, the buyer is required to deduct 1% TDS from the total sale amount paid to the seller. The deduction applies regardless of whether the seller books a profit or a loss. The deducted amount must then be deposited with the Central Government.
Buying Crypto Using Another Crypto
When purchasing one cryptocurrency by paying with another, the 1% TDS applies to the crypto used as payment. The buyer must deduct TDS based on the INR value of the crypto being spent, as this qualifies as a transfer under the tax law.
Selling Crypto For Another Crypto
If a person sells crypto and receives another crypto in exchange, the TDS is to be deducted based on the fair market value of the crypto being sold. The person receiving the asset is responsible for deducting and remitting the 1% TDS accordingly.
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How to Calculate 1% TDS on Crypto Transactions?
The TDS is calculated on the total transaction value, not on the gain. The calculation differs slightly based on whether the trade is in INR or crypto-to-crypto format.
TDS Calculation on INR-Based Trades
When crypto is sold for INR, 1% of the total sale amount is deducted as TDS by the buyer or exchange. The amount is then deposited with the tax authorities, regardless of profit or loss made on the sale.
Example:
If you sell crypto worth INR 80,000, the TDS will be 1% of 80,000, which is INR 800. The buyer or platform will deduct INR 800 and transfer the remaining INR 79,200 to your account.
TDS Calculation on Crypto-to-Crypto Trades
In a crypto-for-crypto trade, 1% TDS applies to the crypto being used as payment. The value of this crypto is converted into INR at the market rate, and 1% of that amount is deducted as TDS.
Example:
You use 2 Ethereum (valued at INR 90,000 each) to buy Bitcoin. Total value = INR 1,80,000. TDS = 1% of 1,80,000 = INR 1,800. You must deduct and deposit this TDS.
TDS Deduction vs Profit or Loss in Transaction
TDS is deducted from the gross transaction value, regardless of whether the trade results in a gain or loss. This makes it a compliance requirement, not a tax on income.
Example:
You buy crypto at INR 60,000 and sell it for INR 55,000, making a loss. TDS is still 1% of INR 55,000 = INR 550, which must be deducted by the buyer.
Understanding Form 26QE For Crypto TDS
The Income Tax Act mandates that TDS deducted on crypto transactions must be reported through Form 26QE. This form is specific to transactions involving Virtual Digital Assets under Section 194S and is required even if the payment is made in crypto instead of cash.
Timeline to File Form 26QE
Form 26QE must be submitted within 30 days from the end of the month in which the TDS deduction takes place. Delayed filing may attract penalties or interest, so taxpayers should keep track of transaction dates and ensure timely compliance.
Where and How to File the Form?
Form 26QE must be filed online via the official TIN-NSDL portal. The deductor needs to enter accurate transaction and TDS details. Below are the steps to complete the filing process:
- Visit the TIN-NSDL website
- Select Form 26QE under e-payment of taxes
- Enter PAN details of both the deductor and the deductee
- Choose applicable section: 194S for VDAs
- Provide transaction details, including date and TDS amount
- Generate and download the challan after payment
- Save the acknowledgment for future reference
What Are the Penalties for Non-Compliance With TDS?
Failure to deduct or deposit TDS on crypto transactions can lead to legal and financial consequences. The Income Tax Act outlines clear penalties for different types of violations.
Late or Missed TDS Deduction
If the required TDS is not deducted at the time of the transaction, the deductor is held liable for the full amount. Interest may also be charged from the date the tax was deductible until the date it is actually paid to the government.
Imprisonment and Fines Under Section 276B
As per Section 276B of the Income Tax Act, failure to deposit deducted TDS can lead to imprisonment for a minimum of three years, which may extend to seven years. The provision also includes a monetary fine in addition to the prison sentence.
Additional Penalty Under Section 271C
Section 271C allows for a penalty equal to the amount of TDS not deducted or not paid. This penalty is separate from interest charges and criminal prosecution, and may be imposed by the Joint Commissioner of Income Tax following a notice and hearing.
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How KoinX Can Help With TDS on Cryptocurrency?
Whether you are a beginner making your first crypto trade or an advanced user transacting daily, keeping track of 1% TDS deductions can quickly become complex. KoinX simplifies this process with its powerful portfolio tracker and tax filing software, built to handle the latest crypto tax rules in India.
Seamless Integration With Indian and Global Exchanges
KoinX integrates with 800+ centralised and decentralised platforms, ensuring that all your crypto transactions are automatically imported. This eliminates the need to manually upload trades or calculate values, saving time while improving accuracy in TDS tracking and tax reporting.
Automatic TDS Detection and Classification
KoinX detects which trades fall under the TDS provision by analysing transaction type, value, and date. It classifies each entry accordingly, so you always know where TDS applies and how much has already been deducted or remains due for payment.
Accurate Crypto-To-INR Conversion
The platform uses real-time market data to convert crypto values into INR for precise TDS computation. This ensures your tax records reflect accurate values as per regulatory expectations and prevents under-reporting or over-payment of tax.
ITR-Ready Tax Summaries for Refund Claims
If your total tax liability is lower than the TDS deducted, KoinX helps you claim refunds by offering ITR-ready summaries. These documents show the exact amounts deducted, helping you recover eligible refunds during income tax return filing.
KoinX makes crypto TDS tracking simple, smart, and stress-free. Sign up today on KoinX to automate your tax calculations and never miss a compliance deadline again.
Conclusion
Staying compliant with India’s crypto tax laws is no longer optional, especially with the 1% TDS rule now in effect for every eligible transaction. Whether you are trading through exchanges or swapping tokens, understanding who must deduct TDS and when it applies is crucial to avoid penalties and maintain clean records.
With KoinX, you can automate your TDS tracking, generate reports, and stay fully compliant without the hassle. Start using KoinX today to manage your crypto taxes the smart way.
Frequently Asked Questions
What Happens If I Sell Crypto Below My Purchase Price?
Even if you sell at a loss, 1% TDS is still deducted from the total sale amount. The tax is calculated on the transaction value, not on profit or gain, making it applicable regardless of your actual return.
Is TDS Applicable When Gifting Crypto Assets in India?
TDS is not applicable when gifting crypto if there is no consideration exchanged. However, the recipient may be liable to pay tax on the gift if its value exceeds INR 50,000, as per applicable income tax rules.
Can TDS Be Paid in Crypto Instead of INR?
No, TDS must be paid in INR. Even if the transaction involves crypto-to-crypto payments, the TDS amount must be calculated in INR and deposited with the government in fiat currency through authorised channels.
Will TDS Apply to NFT Trades as Well?
Yes, NFT transactions fall under the definition of Virtual Digital Assets (VDAs). If you transfer an NFT in exchange for INR or another crypto, 1% TDS will apply based on the value of the transaction.
