The 1% TDS, and why losses never help you in India

India taxes every disposal at source and refuses to recognise any loss. Together those two rules do something unusual — they make the number of trades a cost in itself.

Two rules that most guides list separately

Almost every guide to Indian crypto tax mentions the flat 30% rate and stops there. The 30% is not what makes India unusual. Two other rules are, and they only show their real effect when you look at them together.

Flat rate on gains	30% under Section 115BBH, regardless of holding period or your total income. With the 4% health and education cess the effective minimum is 31.2%; surcharges for high earners can take it to roughly 42.7%.
TDS on every transfer	1% under Section 194S, deducted at source on the transfer consideration once the annual threshold is crossed — ₹50,000 for a specified person, ₹10,000 for others.
Losses	Cannot be set off against anything. Not against other income, not against equity or property gains — and not even against gains from other crypto assets. Carry-forward is disallowed.
Deductions	Only the cost of acquisition. No other expenses.

Read the third row again. In most countries a loss reduces a gain. In India it does not reduce anything at all — including a gain on the very same asset class in the very same year.

What the two rules do together

Here is the arithmetic that guides skip. Suppose in one financial year you make two trades of equal size: one produces a ₹1,00,000 gain, the other a ₹1,00,000 loss. Economically you are exactly where you started.

In tax terms you are not. The gain is taxed in full at 30% plus cess — roughly ₹31,200. The loss is worth nothing: it cannot offset that gain, and it cannot be carried forward to a better year. You owe real money in a year in which you earned nothing.

Now add the TDS. Each of those two disposals also had 1% deducted at source on the consideration, not on the profit. That money is recoverable against your final liability — it is advance tax, not an extra charge — but it left your account at the moment of each trade and stays out until you file.

The combined effect is that in India the number of trades is itself a cost. Not a metaphor: each disposal deducts 1% of the full consideration up front, and every losing disposal is a permanent write-off with no tax value whatsoever. A hundred round trips of the same rupees is a hundred TDS deductions on the full amount each time.

Why TDS is not the same thing as tax

This confuses people constantly, in both directions, so it is worth being precise.

TDS is not an additional 1% tax. It is tax deducted in advance and credited against your final liability. If your total liability for the year is ₹31,200 and ₹8,000 was already deducted as TDS, you pay the remaining ₹23,200. Nothing is lost.

But it is not free either. The deduction is on the consideration, not the profit. Sell ₹5,00,000 worth of bitcoin at a loss and 1% of ₹5,00,000 is still deducted — ₹5,000 gone from a losing trade, refundable only when you file and only if you have liability or claim a refund. For an active trader this ties up working capital continuously.

This is the design intent, incidentally. The TDS is a reporting mechanism as much as a revenue one: it creates a transaction trail for the department at every disposal. That is why it applies whether or not you made money.

What follows from this

Three conclusions, and we will not pretend to give advice beyond them.

Record-keeping is not optional here. Only the cost of acquisition is deductible, and you must be able to evidence it for every disposal. Date, quantity, rupee value, platform and the TDS deducted. Reconstructing this at filing time from a year of exchange statements is far harder than logging it as you go.

Frequent trading and Indian tax rules are structurally at odds. This is not a comment on whether trading is a good idea — it is arithmetic. The regime imposes a cost per disposal and refuses to recognise losses, so the strategy that suffers least is the one with fewest disposals.

Nothing here has changed recently. These rules remain in force in 2026, with no amendments to Section 115BBH or Section 194S. If you read an article predicting relief, check whether it describes something that actually passed — several did not.

The wider tax picture is on the crypto tax page, and the funding side is covered in buying with UPI.

Frequently asked questions

Is the 1% TDS an extra tax on top of the 30%?

No. TDS is tax deducted in advance under Section 194S and is credited against your final liability. If your liability for the year is ₹31,200 and ₹8,000 was deducted as TDS, you pay the remaining ₹23,200. However, it is deducted on the transfer consideration rather than on profit, so it also applies to losing trades and ties up capital until you file.

Can I set off my crypto losses against my crypto gains in India?

No. Losses from virtual digital asset transfers cannot be set off against any other income, including capital gains from equity, mutual funds or real estate — and they cannot be set off against gains from other crypto assets either. Carry-forward of such losses is also disallowed.

What is the TDS threshold?

1% TDS applies to the transfer consideration once the annual threshold is crossed: ₹50,000 for a specified person and ₹10,000 for others.

What can I deduct when calculating the gain?

Only the cost of acquisition. Other costs and expenses are not deductible, and losses are not considered. This makes evidence of your acquisition cost for each disposal essential — date, quantity, rupee value, platform and TDS deducted.

This page is general information and does not replace personalised tax advice. Rules and thresholds change — confirm your position with a chartered accountant or the Income Tax Department before acting. Figures reflect publicly available information as of July 2026.