Crypto Tax AY 2026-27: Schedule VDA, TDS 194S, and the Loss Set-Off Trap
Your exchange deducted 1% TDS on every crypto sale in FY 2025-26. That money sits waiting in your AIS as a credit — but only if you claim it correctly in Schedule VDA of ITR-2. Most salaried investors either skip the reconciliation step or file ITR-1 by mistake and get a defective return notice. Here is the full sequence, with exact numbers.
Summary
| Transaction | Tax Rate | Deductible Cost | TDS Applies? |
|---|---|---|---|
| Crypto sale (profit) | 30% + 4% cess = 31.2% | Cost of acquisition only | Yes — Section 194S |
| Crypto-to-crypto swap | 31.2% on gain at swap price | Cost of coin given | Yes — Section 194S |
| Airdrop / mining reward | 31.2% on FMV at receipt | Nil | No |
| Transfer to own wallet | Not taxable (no consideration) | — | No |
| VDA loss vs salary income | Cannot offset | — | — |
| VDA loss vs equity gains | Cannot offset | — | — |
| VDA loss vs other VDA gains | Offsets in same year | — | — |
The 30% Rate Under Section 115BBH: What It Costs at ₹15L+
Section 115BBH (Finance Act 2022, effective AY 2022-23 onwards) imposes a flat 30% (+4% health and education cess) on income from transfer of Virtual Digital Assets. No slab benefit, no ₹1 lakh exemption, no grandfathering based on holding period.
At a ₹20L salary, a ₹2L crypto gain adds ₹62,400 to your tax bill — the same ₹62,400 it would add at ₹5L salary. Your marginal slab does not help here.
The only deduction permitted: cost of acquisition. Brokerage fees, gas fees, exchange withdrawal fees — none are deductible. The law is explicit.
Step-by-Step: Filling Schedule VDA in ITR-2
ITR-2 is mandatory if you have any VDA income. You cannot use ITR-1 once you have crypto gains — even ₹1 of profit locks you out. Filing ITR-1 with undisclosed VDA income is a defective return (Section 139(9)).
Where to find it: ITR-2 → Part B - TTI → Schedule VDA.
For each transaction, enter:
- Category: Crypto asset / NFT / other
- Date of acquisition and date of transfer
- Full value of consideration (sale price)
- Cost of acquisition (purchase price)
- Income from transfer (auto-computed)
Example: BTC purchased 10 January 2026 for ₹1,50,000; sold 15 March 2026 for ₹2,20,000.
| Field | Value |
|---|---|
| Full consideration | ₹2,20,000 |
| Cost of acquisition | ₹1,50,000 |
| Gain | ₹70,000 |
| Tax at 31.2% | ₹21,840 |
Multiple coins, multiple transactions: enter each line separately. The schedule aggregates.
TDS 194S: The 1% Credit You Must Not Leave Behind
This is where most posts stop at "exchanges deduct 1% TDS" and offer no follow-through. Here is the full mechanics.
Section 194S requires any exchange facilitating a VDA transfer to deduct 1% TDS on the gross consideration if the amount exceeds ₹10,000 in a financial year (₹50,000 for specified persons — Hindu Undivided Families and individuals with turnover below ₹1 crore).
What this means in practice: every sell order you place on CoinDCX, WazirX, or Binance India that crosses the threshold results in a TDS deduction. The exchange files a TDS return (Form 26Q / 27Q) and the credit appears in your AIS under "TDS under Section 194S."
Worked example — Priya, ₹22L salary, sold BTC and ETH in FY 2025-26:
| VDA Transaction | Amount |
|---|---|
| BTC sold (gross consideration) | ₹2,20,000 |
| ETH sold (gross consideration) | ₹45,000 |
| Total TDS deducted at 1% | ₹2,650 |
Her VDA gains: BTC ₹70,000 gain, ETH ₹12,000 gain. Net VDA income: ₹82,000.
Tax on ₹82,000 at 31.2% = ₹25,584
Less TDS credit: ₹2,650
Net VDA tax payable: ₹22,934
To claim this credit in ITR-2: go to Schedule TDS (Part B → Schedule TDS2 for non-salary TDS). Enter the exchange's TAN (visible in AIS), gross amount, and TDS deducted. The refund or balance payable adjusts automatically.
Critical step before filing: open AIS (income-tax.gov.in → e-File → AIS) and match every Section 194S entry against your exchange transaction history. A mismatch — exchange reported ₹5,000 TDS, portal shows ₹4,800 — needs an AIS feedback submission before you file. Filing with an unresolved mismatch triggers automated scrutiny.
The Loss Set-Off Prohibition: Three Traps
Section 115BBH(2)(b) prohibits VDA losses from being set off against any income other than VDA gains of the same year. The traps:
Trap 1 — Intra-year VDA netting is allowed: If you sold BTC at ₹70,000 gain and ETH at ₹20,000 loss in the same year, your taxable VDA income is ₹50,000 (₹15,600 tax). This netting is valid.
Trap 2 — Carry-forward is disallowed: If your only crypto activity was an ETH ₹20,000 loss, that loss cannot be carried to AY 2027-28. It is dead. There is no Schedule CFL entry for VDA losses.
Trap 3 — Crypto-to-crypto swap losses: If you swapped BTC for ETH and BTC was at a loss at the swap date, that loss follows the same prohibition. It offsets other VDA gains in the same year or it disappears.
Inter-Exchange Transfers: Not Taxable, But Document Everything
Moving crypto from one exchange to another (CoinDCX to WazirX) or to a self-custody hardware wallet does not generate a "consideration" and is not a taxable transfer under the prevailing reading of Section 115BBH.
The problem: both exchanges report the outbound and inbound transaction in AIS. Without documentation, the portal's compliance module reads the outbound as a "sale" and auto-generates a mismatch notice.
What to do: download full transfer history from both exchanges before filing. When you see an AIS entry that reflects a self-transfer, raise AIS feedback ("transfer to own wallet — no consideration, not a sale"). This creates a paper trail and suppresses the automated demand.
Real Example: Arjun, ₹28L CTC, Hyderabad
| Item | Detail |
|---|---|
| Salary (FY 2025-26) | ₹28,00,000 |
| BTC gain (April–June 2025) | ₹1,20,000 |
| MATIC loss (October 2025) | ₹38,000 |
| TDS deducted by exchange (194S) | ₹1,980 |
| Transfer WazirX → Ledger (Dec 2025) | ₹1,40,000 (self-custody, no sale) |
Schedule VDA calculation:
- Net VDA income: ₹1,20,000 − ₹38,000 = ₹82,000
- Tax at 31.2%: ₹25,584
- Less TDS credit (194S): ₹1,980
- Net payable: ₹23,604
The Ledger transfer appears in AIS as a WazirX "outbound." Arjun submits AIS feedback with a screenshot of the Ledger receive transaction. No demand generated.
Advance tax note: ₹23,604 of VDA tax liability should have been paid as advance tax by 15 June 2025 (Q1, for gains crystallised April–June). Delayed payment attracts Section 234C interest at 1% per month for the shortfall period.
What to Do Before 31 July 2026
- Log in to income-tax.gov.in → e-File → AIS. Download and review every Section 194S entry.
- Cross-reference with exchange transaction histories. Raise AIS feedback for any inter-exchange or self-custody transfer that AIS is treating as a sale.
- Use ITR-2 — not ITR-1. VDA income, even ₹1, disqualifies you from ITR-1.
- Fill Schedule VDA with cost, sale price, and date for every transaction. Aggregate where the exchange provides a consolidated statement.
- Claim TDS credit in Schedule TDS2. Don't skip this — ₹1,980 to ₹5,000+ in TDS credit is common for active traders.
File Right — Every Rupee of TDS You Paid Is a Credit Waiting
Section 115BBH is inflexible: 31.2% flat, no exemptions, no slab relief. But the filing mechanics — Schedule VDA, TDS 194S credit, AIS reconciliation — are where money is actually left on the table. Handle those three steps and you will recover every rupee of TDS already deducted, avoid automated demand notices, and meet the 31 July deadline cleanly.
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