How Is Crypto Taxed in India? [2026 Rules & TDS Explained]#
The Indian government has made its stance on cryptocurrency abundantly clear: they tolerate it, but they intend to tax it aggressively to discourage retail speculation.
The introduction of Section 115BBH and Section 194S to the Income Tax Act created a draconian framework for Virtual Digital Assets (VDAs), which includes all cryptocurrencies (Bitcoin, Ethereum, Tether) and Non-Fungible Tokens (NFTs).
If you hold, trade, or transfer crypto in 2026, here is the exact regulatory and taxation landscape you must navigate.
1. The 30% Flat Tax (Section 115BBH)#
Any income derived from the transfer (sale or exchange) of a Virtual Digital Asset is taxed at a flat rate of 30%, plus applicable surcharge and a 4% health and education cess.
- No Slab Benefits: It does not matter if your total annual income is below the ₹3 Lakhs basic exemption limit. If you make a ₹10,000 profit on Bitcoin, you owe ₹3,000 in tax (plus cess), irrespective of your tax bracket.
- No Deductions Allowed: When calculating your profit, the only deduction allowed is the "Cost of Acquisition" (the purchase price). You cannot deduct exchange fees, gas fees, internet costs, or interest on loans taken to buy the crypto.
2. The Absolute Ban on Setting Off Losses#
This is the most controversial and financially punishing aspect of the Indian crypto tax law.
- No Intra-Asset Set-Off: If you make a ₹50,000 profit on Bitcoin and a ₹30,000 loss on Ethereum in the same year, you cannot net them out to pay tax on a ₹20,000 profit. You must pay 30% tax on the ₹50,000 Bitcoin profit, and the Ethereum loss is entirely ignored by the government.
- No Carry Forward: Unlike stock market losses, which can be carried forward for 8 years to offset future gains, crypto losses are dead the moment they are realized. You cannot carry them forward to the next financial year.
- No Set-Off Against Other Income: You obviously cannot use crypto losses to reduce your tax liability from salary, business income, or real estate capital gains.
3. The Tracking Mechanism: 1% TDS (Section 194S)#
To ensure traders don't hide their transactions on decentralized exchanges or offshore platforms, the government introduced a powerful tracking mechanism: a 1% Tax Deducted at Source (TDS).
- How it works: Every time you sell or trade a crypto asset, the buyer (or the exchange facilitating the trade) must deduct 1% of the total transaction value and deposit it with the government against your PAN.
- Crypto-to-Crypto Trades: If you trade Bitcoin for Ethereum, both assets are being "transferred." Therefore, a 1% TDS is levied on both sides of the transaction.
- The Threshold: TDS applies if the total value of crypto transactions in a financial year exceeds ₹50,000 (for individuals/HUFs filing ITR with business income < ₹1Cr) or ₹10,000 (for all other investors).
Note: You can claim this 1% TDS as a refund or adjust it against your final tax liability when you file your Income Tax Return. Its primary purpose is purely to establish an audit trail for the Income Tax Department.
4. Taxation on Mining and Airdrops#
- Mining: If you mine crypto, the cost of acquisition is considered 'Nil'. When you eventually sell the mined crypto, the entire sale value is taxed at 30%. You cannot deduct the cost of your mining rigs or electricity bills.
- Airdrops & Gifts: If you receive free crypto via an airdrop or as a gift, it is taxed as "Income from Other Sources" under Section 56(2)(x) at your applicable slab rate, provided the value exceeds ₹50,000. When you later sell this gifted crypto, the subsequent profit is taxed at the flat 30% rate under 115BBH.
Conclusion#
The Indian crypto tax regime operates on a "heads I win, tails you lose" philosophy. The inability to offset losses means high-frequency day trading is mathematically unviable for Indian residents. The only strategy that survives this tax structure is long-term holding. Ensure you use automated crypto tax software (like KoinX or ClearTax) to parse your exchange API data and calculate the 30% tax accurately before the July 31st ITR deadline.