Crypto traders in India often focus on the 1% TDS deducted by Indian exchanges, thinking that’s the end of their tax responsibility. But when you trade on foreign exchanges like Binance or decentralised platforms like Uniswap, things change. These platforms do not deduct TDS, which leaves you wondering, Do I still need to comply?
The answer is yes. Indian tax law places the responsibility of TDS deduction on the buyer, even if the exchange is outside India or runs without KYC. This article explains what the law requires, why foreign platforms do not deduct TDS, and how you can prepare for future tax scrutiny.
What Does the Law Say About TDS on Crypto Trades?
Before you trade on any crypto platform, it is important to understand who is legally responsible for deducting TDS. Section 194S of the Income Tax Act places the TDS obligation on the person buying the crypto, regardless of where the trade happens.
Let’s break down how this works in different scenarios.
Section 194S: TDS on VDA Transfers
The Income Tax Act, through Section 194S, requires a buyer to deduct 1% TDS on payments made for the transfer of virtual digital assets over INR 10,000 or (INR 50,000 in some cases). This applies whether you are an individual, business, or any other entity purchasing crypto from a seller.
How Is It Applied?
Let’s understand how this applies across different trading scenarios.
Seller PAN Available
If you somehow know the seller’s PAN, the law requires you to deduct TDS at 1% of the transaction value. This follows the standard rule under Section 194S.
Seller PAN Not Available
If you cannot obtain the seller’s PAN, which is usually the case on foreign exchanges and DEXs, Section 206AA comes into play. This section increases the TDS rate to 20% to compensate for the missing PAN.
TDS Compliance on Indian Exchanges
TDS compliance is simple when you trade on Indian crypto exchanges. These platforms are regulated under Indian tax laws and automatically handle the TDS deduction for you. This saves you from calculating or depositing TDS yourself. Here is how the process works on Indian exchanges.
How Indian Exchanges Handle TDS?
Indian exchanges like CoinDCX, WazirX, and others automatically deduct 1% TDS from your crypto sale transactions. This deduction happens at the time of the trade, so you do not need to take any extra steps. The exchange deposits the deducted amount with the Income Tax Department, ensuring compliance with Section 194S on your behalf.
Why Compliance Is Seamless on Indian Platforms?
These exchanges make compliance easy by managing the entire TDS process. After depositing the deducted tax, they issue you a TDS certificate known as Form 16A. You can use this certificate while filing your Income Tax Return to claim the TDS already paid. This automation removes the need for manual calculations and payments.
TDS on Foreign Exchanges and Decentralised Exchanges
When you move beyond Indian exchanges and trade on global platforms or decentralised exchanges, the TDS process changes completely. These platforms do not fall under Indian tax laws, so they do not deduct TDS for you. But the legal responsibility to deduct and deposit TDS remains with you, the Indian buyer. Let’s see how this works.
No Automatic TDS Deduction on Foreign Platforms
Foreign centralised exchanges like Binance, Kraken, and Bybit, and decentralised exchanges like Uniswap and PancakeSwap, do not deduct TDS on crypto trades. Since these platforms are not regulated by Indian tax laws, they have no legal obligation to help you with TDS compliance. Your trades are processed without any tax deductions.
Buyer Is Legally Responsible for TDS
Under Section 194S, the buyer is required to deduct 1% TDS when purchasing crypto. However, without knowing who the seller is, this becomes impractical on foreign exchanges and DEXs. Despite this challenge, the buyer still holds the legal responsibility.
If the seller’s PAN is available, the buyer should deduct TDS at 1%. But if the PAN is not available, Section 206AA of the Income Tax Act applies. This section increases the TDS rate to 20% in cases where the seller’s PAN is not provided. The rule is designed to encourage tax compliance and ensure higher tax collection when identity information is missing.
Practical Challenges of Deducting TDS on Foreign Exchanges and DEXs
While the law makes the buyer responsible for deducting TDS, following this rule is extremely difficult on foreign exchanges and decentralised platforms. The nature of these platforms makes it impossible to identify the seller or obtain their PAN. Let’s look at the main challenges that prevent practical compliance with the law.
Seller Identity Is Unknown
When you trade on foreign exchanges or DEXs, your transaction is matched anonymously through global order books or liquidity pools. You have no way of knowing who the seller is, let alone whether they are an Indian resident. Since the law applies only when the seller is a resident, this lack of information creates a major compliance gap.
Absence of Seller PAN Leads to Higher TDS Rate
Section 206AA of the Income Tax Act states that if the seller’s PAN is not available, TDS must be deducted at 20% instead of 1%. But on foreign exchanges and DEXs, there is no way to obtain the seller’s PAN. This means that technically, you should deduct 20% TDS, but practically, there is no way to do this.
No Practical Way to Deduct or Deposit TDS
Combining the anonymous nature of foreign exchanges and the absence of seller PAN, there is no workable mechanism to deduct or deposit TDS on these trades. While the legal obligation remains, these practical difficulties create a gap between what the law says and what is possible for investors.
Disallowance of Future Deductions
Failing to report crypto income can also impact your ability to claim legitimate tax deductions in the future. The Income Tax Department may reject your claims if they find gaps in your income reporting.
Consequences of Not Deducting TDS
Even though deducting TDS on foreign exchanges and DEXs is practically impossible, the legal obligation remains. If the Income Tax Department later reviews your trades and finds that TDS was not deducted, you could face financial and legal consequences. Let’s break down the possible outcomes.
Interest on Late TDS Payment
If you fail to deduct or deposit TDS, you may be charged interest under Section 201(1A) of the Income Tax Act. This interest is calculated at 1% per month, starting from the date when TDS should have been deducted to the date when it is actually paid. Over time, this can significantly increase your total tax liability.
Penalties for Non-Deduction
In addition to interest, the tax department may impose penalties under Section 271C. This penalty can be equal to the amount of TDS that was not deducted or paid. For example, if you failed to deduct INR 10,000 or INR 50,000 as TDS, the penalty could also be ₹10,000, doubling your cost of non-compliance.
Disallowance of Business Expenses
If you are declaring your crypto activity as business income, the Income Tax Act allows the disallowance of related expenses under Section 40(a)(ia) when TDS is not deducted. This means your taxable income may increase, leading to a higher overall tax liability.
Read More: How Are Crypto Profits Taxed In India?
How KoinX Helps You Manage TDS on Foreign Trades?
Staying compliant with TDS rules for foreign exchanges and DEXs may feel confusing, but KoinX simplifies the process. Even when practical deduction is difficult, KoinX helps you calculate your potential TDS liability and maintain transparent records. Here’s how it supports your compliance journey.
Track Sale Values Where TDS Applies
KoinX automatically tracks your crypto sales across foreign exchanges and DEXs. It identifies the sale value of every transaction where TDS should have been deducted, giving you a clear picture of your potential tax liability.
Prepare for Future Compliance
With KoinX, you can download detailed reports showing your foreign and decentralised trades, including their sale values. This helps you stay prepared in case tax authorities later ask you to justify your non-deduction of TDS or pay the tax yourself.
Integration with 800+ Centralised and Decentralised Exchanges
KoinX seamlessly integrates with over 800 platforms, including popular centralised exchanges and DEXs. This ensures that your complete crypto portfolio is tracked in one place, without any missed transactions.
ITD-Compliant Tax Reports
KoinX generates detailed tax reports that align with the latest Income Tax Department (ITD) guidelines. These reports help you file your crypto income and TDS-related disclosures accurately in your ITR.
Free Portfolio Tracker
In addition to tax reports, KoinX also offers a free crypto portfolio tracker. You can monitor your investments, wallet balances, and trading activity across multiple platforms from a single dashboard.
Why Wait? Use KoinX today to track your foreign crypto trades, understand your TDS liability, and prepare your records for future compliance checks with confidence.
Conclusion
Trading on foreign exchanges and DEXs does not remove your responsibility to deduct TDS. Indian tax law still applies, and the legal duty to comply rests with the buyer. Even though practical challenges make deduction difficult today, ignoring this responsibility can lead to future penalties, interest, and compliance checks.
The best way to stay prepared is to maintain detailed trade records and calculate your potential TDS liability on every sale. Tools like KoinX simplify this process, helping you avoid surprises during tax season. Start using KoinX today to track your foreign crypto trades and stay prepared for future TDS compliance with ease.
Frequently Asked Questions
Is TDS Mandatory on Foreign Crypto Exchanges?
Yes, under Indian tax law, TDS applies to all crypto trades, including those on foreign exchanges. However, due to the anonymous nature of these platforms, it is practically difficult to comply. The legal responsibility still remains with the buyer, and future enforcement could ask you to justify non-deduction.
What Happens If I Cannot Find the Seller’s PAN?
If the seller’s PAN is unavailable, Section 206AA of the Income Tax Act applies. This increases the TDS rate from 1% to 20%. On foreign exchanges and DEXs, seller PAN is typically not available, creating a compliance gap that places the full responsibility on the buyer.
Does the 20% TDS Rate Apply to DEX Trades?
Technically, yes. If the seller’s PAN is not available, the default TDS rate becomes 20% under Section 206AA. On DEXs, since you cannot identify the seller, the law assumes a 20% TDS rate, even though it is practically impossible to deduct.
How Should I Report Foreign Trades in My ITR?
You should report the income or capital gains from foreign exchange trades in your ITR, even if TDS was not deducted. Use your trade records to calculate the correct tax amount. Crypto tax tools like KoinX help prepare these reports accurately.
