India's 1% crypto TDS (Section 194S) explained — and the 30% tax — 2026

India taxes crypto more strictly than almost any major economy, and it does so through two rules every Indian crypto user needs to understand. The first is a 1% TDS — Tax Deducted at Source — under Section 194S, applied to every crypto transaction by an Indian resident, not just profitable ones. The second is a flat 30% tax on gains under Section 115BBH, with no loss offset and no deductions beyond the cost of acquisition. Together they make Indian crypto activity heavily reported and expensive to trade actively. This guide explains how each works, how FIU-IND registration separates compliant exchanges from the rest, and what it means in practice. It is an explainer, not tax advice; for your situation, consult a qualified chartered accountant.

The 1% TDS under Section 194S

Section 194S, effective 1 July 2022, requires that 1% of the value of a virtual digital asset (VDA) transfer by an Indian resident is deducted at source and remitted to the government. On an Indian compliant exchange, the exchange handles the deduction automatically on the sell side of each trade. The key word is every: the TDS applies to the transaction value, regardless of whether you made a profit or a loss. Sell ₹1,00,000 of crypto and ₹1,000 is deducted as TDS, even if you sold at a loss.

The TDS is not an additional tax in itself — it is a prepayment, credited against your final tax liability and refundable through your income-tax return if it exceeds what you owe. But its real effect is twofold. First, it creates a comprehensive paper trail: the government sees a record of essentially every disposal. Second, and more painfully for traders, it is a liquidity drag on active trading. Because 1% is taken on every sell, a high-frequency trader churning capital sees it compound rapidly — trade the same capital a hundred times and a meaningful share has leaked to TDS prepayments long before any profit is calculated. The rule was, in part, designed to discourage exactly that high-frequency churn.

The 30% flat tax under Section 115BBH

Separate from the TDS, Section 115BBH taxes income from the transfer of VDAs at a flat 30% (plus applicable surcharge and cess), effective from the 2022–23 assessment year. Three features make it severe:

• No loss offset. A loss on one VDA cannot be set against a gain on another VDA, nor against any other income. Each gain is taxed; losses are simply lost for tax purposes — an unusually harsh treatment found in few other jurisdictions.
• No deductions except cost of acquisition. You cannot deduct trading expenses, infrastructure, or interest — only what you paid to acquire the asset.
• Flat rate regardless of holding period. There is no long-term/short-term distinction and no lower bracket; gains are 30% whether you held for a day or a decade.

The combination — 1% TDS on every trade plus 30% on gains with no loss relief — is why India’s regime is widely regarded as one of the strictest, and why it reshaped Indian crypto behaviour toward lower-frequency, longer-hold strategies.

FIU-IND registration — which platforms are compliant

The second pillar of India’s framework is anti-money-laundering registration. Under the Prevention of Money Laundering Act, as amended in March 2023, any entity providing virtual-asset services (exchange, wallet, transfer) to Indian residents must register with the Financial Intelligence Unit – India (FIU-IND) as a reporting entity. This is the line that separates compliant platforms from those operating outside the framework.

For a user, FIU-IND registration is the single most important compliance signal when choosing where to trade: a registered exchange handles the 1% TDS deduction correctly, reports as required, and is operating inside Indian law. The domestically built exchanges — CoinDCX and CoinSwitch among them — were FIU-registered early, and several global exchanges re-registered to regain access to Indian users after enforcement action removed non-compliant platforms. When evaluating an exchange for an Indian audience, FIU-IND registration status belongs at the top of the checklist; our Asia crypto-exchange coverage flags it per platform.

How India got here — and the 2023–24 enforcement

The framework arrived fast and then was enforced hard. Section 115BBH’s 30% tax took effect from 1 April 2022; the 1% TDS under Section 194S followed on 1 July 2022. Then, in March 2023, the Prevention of Money Laundering Act was amended to bring virtual-asset service providers under its scope, making FIU-IND registration mandatory for anyone serving Indian users.

The decisive moment came in late 2023, when FIU-IND issued show-cause notices to a group of offshore exchanges operating in India without registration, and the government moved to restrict access to several non-compliant platforms — including app-store delistings and URL blocks. The practical effect was a migration: Indian users consolidated onto FIU-registered domestic exchanges, and several global platforms subsequently re-registered with FIU-IND and paid penalties to regain compliant access to the Indian market. The episode hardened the line that now defines the market — FIU registration is not optional, and the platforms that ignored it lost access. For anyone evaluating an exchange for an Indian audience, that history is the reason registration status sits at the top of the checklist rather than as a footnote.

What it means for Indian crypto users

The practical takeaways for an Indian resident, and for anyone creating content for that audience:

1. Use an FIU-registered exchange. It handles the 1% TDS correctly and keeps you inside the framework. Trading on an unregistered platform does not exempt you from the tax — it just removes the automated compliance and adds risk.
2. Active trading is expensive by design. The 1% TDS on every sell compounds, so high-frequency strategies bleed capital to prepayments. The regime rewards lower-frequency, longer-hold approaches.
3. You cannot net losses against gains. Plan with the knowledge that a losing position offers no tax relief against a winning one — each gain is taxed at 30% in isolation.
4. Reconcile and file. The TDS paper trail means the government has visibility; file your return, claim the TDS credit, and keep records.

Common questions

Is the 1% TDS the same as the 30% tax?

No. The 1% TDS (s.194S) is a prepayment deducted on every transaction and credited against your final bill; the 30% (s.115BBH) is the actual tax on your gains. You can pay TDS on a trade and still owe nothing — or be refunded — if you had no taxable gain.

Do I pay TDS even if I lost money on the trade?

Yes. The 1% TDS is on the transaction value, not the profit, so it applies to loss-making disposals too. It is recoverable through your return if your overall liability is lower.

Can I deduct my crypto trading costs?

No. Section 115BBH allows only the cost of acquisition. Trading fees, hardware, and interest are not deductible against VDA gains.

Does FIU registration mean an exchange is “safe”?

FIU-IND registration means the exchange is a registered reporting entity operating inside India’s AML framework and handling TDS compliance — a necessary baseline, and the most important compliance signal. It is not a guarantee of any other quality, so evaluate the platform on its full merits.

Do I pay TDS on crypto-to-crypto trades?

Yes. A crypto-to-crypto trade is a transfer of a virtual digital asset, so the 1% TDS applies — and because both sides involve a VDA, the mechanics can apply to each leg. On a compliant exchange the deduction is handled for you; the value, not the profit, is what TDS is charged on.

What if I trade on a foreign or offshore exchange?

The tax and TDS obligations follow the Indian resident, not the platform — so trading offshore does not exempt you from the 30% tax or the 1% TDS, and where an exchange does not deduct TDS, the responsibility to account for it can fall on the user. After the 2023–24 enforcement, many non-FIU-registered offshore platforms were restricted in India in any case. Using an FIU-registered exchange is both the compliant and the practical choice.

Is there any way to reduce the 30%?

Not through deductions or loss offsets — Section 115BBH is a flat 30% with only the cost of acquisition allowed and no loss relief. The only levers are the ones the regime is designed to encourage: lower-frequency trading (to reduce the compounding TDS drag) and holding within a properly reported, compliant framework. For specifics, a qualified chartered accountant is the right adviser.

The bottom line

India’s crypto tax is two rules working together: a 1% TDS on every transaction that creates a paper trail and penalises churn, and a flat 30% on gains with no loss relief. Trade on an FIU-IND-registered exchange so the TDS is handled correctly, plan around the no-loss-offset reality, and file your return to claim the TDS credit. This guide is general information, not tax advice; for your specific circumstances, consult a qualified Indian chartered accountant or the Income Tax Department directly.