Crypto Tax 1% TDS Under Section 194S: How the Deduction Works on Every Trade
TL;DR
- Section 194S imposes a 1% TDS on the transfer of any Virtual Digital Asset above Rs. 50,000 in a financial year for individuals and HUFs not under tax audit (Rs. 10,000 for specified persons).
- The TDS is deducted on the gross consideration, not the profit, so it can be deducted even when you make a loss.
- Indian exchanges like CoinDCX, WazirX, and Mudrex deduct the 1% automatically and report it in your Form 26AS and AIS.
- For peer-to-peer transfers, the buyer is legally responsible for deducting and depositing the TDS using Form 26QE.
- The TDS is a prepayment of tax, not the final tax. You still owe 30% under Section 115BBH on the actual gain.
- Excess TDS can be claimed back as refund while filing ITR-2 or ITR-3 for AY 2026-27.
What this means in plain terms
Every time you sell a crypto token on an Indian exchange, 1% of the sale value silently disappears before the rupees hit your bank. That is Section 194S in action. The Finance Act 2022 introduced it specifically to create a paper trail so the tax department can match every crypto sale you make against what you eventually report in your ITR. It is the same mechanism that already works with rent over Rs. 50,000 a month under Section 194-IB and with property purchases under Section 194-IA.
The catch is that 1% is on the gross sale, not the profit. So if you sold Rs. 10 lakh of Bitcoin you bought for Rs. 9 lakh, the exchange deducts Rs. 10,000 even though your profit was only Rs. 1 lakh. You will get most of it back as refund eventually, but the cash flow hit during the year is real. Frequent traders feel this the most.
Section 194S: thresholds and triggers
The Rs. 50,000 threshold for individuals
For individuals and HUFs whose total VDA consideration during the financial year is up to Rs. 50,000, no TDS is deducted. The moment cumulative sales cross Rs. 50,000, the exchange starts deducting 1% on every subsequent trade. The threshold resets every financial year.
The Rs. 10,000 threshold for specified persons
If you are a company, firm, LLP, or an individual subject to tax audit under Section 44AB, the threshold drops to Rs. 10,000. Most retail investors will not fall in this bracket, but freelancers who breached the Rs. 50 lakh turnover under presumptive taxation do.
What counts as a transfer
Sale, exchange of one VDA for another, and use of VDA as consideration for goods or services all count as transfers. So swapping Bitcoin for Ether on an exchange triggers two TDS events, not one, because both sides of the swap are technically transfers.
How exchanges handle the TDS
CoinDCX, WazirX, and Mudrex deduct automatically
Indian exchanges deduct 1% on the rupee equivalent of the sale at the moment of execution. The deducted amount is deposited to the credit of the central government using your PAN and reflects in Form 26AS by the next quarter.
Form 26QE filing for non-exchange transfers
If you sell to another person directly, the buyer must file Form 26QE within 30 days from the end of the month and pay the 1%. This is the equivalent of the Form 26QB used for property purchases. Skipping it triggers Section 201(1A) interest at 1% per month.
Crypto-to-crypto swaps
A swap between two cryptos is taxed both ways. If you swap Solana worth Rs. 1 lakh for Ether worth Rs. 1 lakh, you have transferred Solana (TDS deducted) and the counterparty has transferred Ether (TDS deducted). Most aggregator platforms now handle both legs, but DEX users often miss it.
Reporting the TDS in ITR
Match Form 26AS and AIS first
Before opening ITR-2, download Form 26AS and the Annual Information Statement. The TDS deducted under Section 194S appears under the 194S row. Reconcile this with your exchange statement.
Claim credit in Schedule TDS
Under Schedule TDS in ITR-2 or ITR-3, enter the TDS amount against PAN of the deductor. The credit is set off first against your 30% VDA tax liability under Section 115BBH, and any excess is refunded.
Schedule VDA must list each transaction
You cannot bulk-report VDA transactions for AY 2026-27. Schedule VDA requires date of acquisition, cost, date of transfer, sale value, and gain or loss for every single trade. Use exchange-provided CSV files to populate this.
A real example
Take Sneha, 27, Rs. 14L CTC, Pune, working in product management. During FY 2025-26 she made 38 trades on WazirX, with total gross sales of Rs. 6,80,000. Her total cost of acquisition across those trades was Rs. 5,40,000, giving a net gain of Rs. 1,40,000.
Step 1: WazirX deducted 1% TDS on Rs. 6,30,000 worth of trades (the first Rs. 50,000 was below threshold). That is Rs. 6,300 deposited under PAN with the government.
Step 2: Sneha's actual tax liability under Section 115BBH is 30% of Rs. 1,40,000, which is Rs. 42,000, plus 4% cess of Rs. 1,680. Total Rs. 43,680.
Step 3: She claims credit of Rs. 6,300 TDS already paid. Net VDA tax payable: Rs. 37,380.
Step 4: She also has Rs. 92,000 of TDS deducted on her salary by her employer, which goes into a separate computation. The Rs. 6,300 VDA TDS sits separately under the 194S row in 26AS.
Step 5: At filing, her total tax across salary and VDA is fully covered by TDS plus a small self-assessment payment of Rs. 4,200, which she makes through Challan 280 before submitting ITR-2.
What to do this week
- Download Form 26AS from incometax.gov.in and look for entries under Section 194S to confirm your exchange-deducted TDS is reflected correctly.
- Pull a complete trade history from every Indian exchange and reconcile gross sale value against the TDS deducted.
- If you sold crypto P2P, file Form 26QE for each transaction immediately to avoid Section 201(1A) interest.
- Maintain a separate spreadsheet for each VDA showing FIFO cost basis, sale value, and TDS for the year.
- Run the 6-step assessment at https://myfinancial.in to see your old-vs-new regime delta, unused deductions, and insurance gap in under 10 minutes.
FAQ
What if my total trading turnover is below Rs. 50,000 for the year?
The exchange will not deduct any TDS, but you still owe 30% under Section 115BBH on whatever gain you made. You must still report each trade in Schedule VDA. The threshold only governs the TDS obligation, not the income tax.
Does the 1% TDS apply to crypto purchases too?
No. TDS under Section 194S is on the transferor, not the buyer. If you are buying Bitcoin with INR, no TDS is deducted from your side. The seller's side bears the TDS.
What happens if the exchange forgets to deduct TDS?
The exchange is liable for the TDS along with interest and penalty under Section 201. You are not punished, but the unreported sale will still show up via SFT data the exchange files with the tax department.
Can I take credit of TDS deducted by a foreign exchange?
No. Foreign exchanges are not required to deduct Indian TDS, and any local withholding tax they apply does not qualify as Section 194S credit. You may claim foreign tax credit under Section 90 or 91 through Form 67 if a DTAA applies.
Will P2P transactions on Telegram or Discord be flagged?
The buyer is legally required to deduct TDS. If neither side reports, the unreported income still shows up when one of you deposits crypto on an Indian exchange and that exchange files an SFT report. Enforcement is improving each year.
Does TDS apply on gifts of VDAs?
If a VDA is gifted, no consideration is paid, so Section 194S does not apply at the gift stage. However, the recipient pays tax under Section 56(2)(x) at fair market value, and any future sale by the recipient triggers 194S as usual.
Can I claim refund if total TDS is more than my 30% liability?
Yes. Excess TDS over your actual Section 115BBH liability is refunded along with interest under Section 244A from 1 April of the assessment year. File ITR-2 or ITR-3 with correct Schedule TDS entries.
Sources
- https://incometax.gov.in for Section 194S text and CBDT Circular 13 of 2022 with operational FAQs
- https://incometaxindia.gov.in for Form 26QE format and filing instructions for P2P transfers
- https://www.incometax.gov.in for Schedule VDA filing rules in ITR forms for AY 2026-27
- https://finmin.nic.in for the Finance Act 2022 amendment introducing Section 194S
- https://rbi.org.in for compliance guidance on virtual digital assets and reporting obligations
This is general information, not personalised advice. For your situation, consult a Certified Financial Planner.
