1% TDS on Crypto in India: Rules, Thresholds & Compliance Guide

You just sold some Bitcoin for a quick profit, or maybe you swapped Ethereum for Solana. You check your bank account, and the money is there. But wait-where did that extra deduction go? If you are trading cryptocurrencies in India, you have likely encountered the 1% Tax Deducted at Source (TDS). It’s not a penalty, and it’s not gone forever. But if you don’t understand how it works, it can mess up your cash flow and create unnecessary headaches during tax season.

Since July 1, 2022, every time you transfer a Virtual Digital Asset (VDA) above certain limits, the government takes a 1% cut upfront. This rule, introduced under Section 194S of the Income Tax Act, 1961, was designed to track crypto transactions in an otherwise opaque market. The goal wasn't necessarily to tax you more, but to make sure everyone reports their income. Yet, for many traders, the complexity of thresholds, buyer vs. seller responsibilities, and filing forms feels like solving a puzzle with missing pieces.

Who Needs to Pay and When Does It Kick In?

The first thing you need to know is that this isn't a flat tax on everyone all the time. It depends entirely on who you are and how much you trade. The law distinguishes between "specified persons" and everyone else. Specified persons are essentially individuals and Hindu Undivided Families (HUFs) who aren't required to get their accounts audited. For you, the magic number is ₹50,000. This means if your total sales of crypto assets in a financial year stay below ₹50,000, no TDS is deducted. Once you cross that line, the 1% applies to the entire amount from that point onward, or in some interpretations, from the first rupee once the limit is breached depending on exchange implementation. Always check with your specific platform.

If you are a company, a firm, or an individual subject to tax audit, the bar is much lower. Your threshold is just ₹10,000. That’s right, a single small swap could trigger compliance obligations. Why such a difference? The logic is that larger entities should have better record-keeping capabilities. But for retail investors, the ₹50,000 limit offers a bit of breathing room. However, be careful: this limit applies to the aggregate value of transfers, not just profits. Selling ₹50,000 worth of coins counts toward this limit, even if you made zero profit.

What Exactly Counts as a "Transfer"?

This is where most people get tripped up. Not every movement of crypto triggers TDS. The Income Tax Department defines a transfer as a change of ownership. So, selling Bitcoin for Rupees? That’s a transfer. Swapping Ethereum for USDT? Also a transfer. Using your crypto to buy coffee? Yes, that counts too.

But what about moving Bitcoin from your Binance wallet to your Ledger hardware wallet? That is not a transfer because you still own it. No ownership change, no TDS. Similarly, gifting crypto to family members might not trigger TDS in the same way a sale does, though gift tax rules apply separately. Staking rewards? Generally, these are treated as income when received, but the act of staking itself doesn’t usually trigger TDS unless you sell those rewards later.

Here’s a tricky scenario: Peer-to-Peer (P2P) trades. If you sell crypto directly to another person without using an exchange, you (the buyer) are responsible for deducting the TDS before paying the seller. You then have to deposit that 1% with the government and file a return. Most retail users ignore this step, leading to potential penalties later. Exchanges automate this, but P2P platforms often leave it up to the user.

The Double Whammy: Crypto-to-Crypto Trades

Let’s say you swap 1 ETH for 2 SOL. Who pays the TDS? Surprisingly, both parties might end up bearing a cost. In a direct fiat-to-crypto trade, the buyer deducts TDS from the payment to the seller. But in a crypto-to-crypto swap, the valuation gets complex. Some exchanges interpret the rule strictly, meaning the buyer deducts 1% based on the INR value of the asset they are receiving, and the seller effectively loses out on that value. In practice, many Indian exchanges handle this by adjusting the balance so that the net effect is roughly 1% lost on the transaction value. However, technically, if two individuals trade crypto-to-crypto, both are transferring assets. The law states the buyer deducts TDS. If you are swapping on a decentralized exchange (DEX), the mechanism is murky. The Central Board of Direct Taxes (CBDT) clarified in 2025 that the entity converting crypto to fiat becomes liable, but pure crypto-to-crypto swaps remain a gray area for manual filers.

How to Handle Compliance: Forms and Deadlines

If you use a registered Indian exchange like CoinDCX, WazirX, or ZebPay, your life is easier. They automatically deduct the 1% and deposit it with the government. You don’t need to do anything monthly. You just need to ensure the TDS credit reflects in your Form 26AS, which is your annual tax statement. This usually happens within 7-10 days after the month ends.

For P2P traders or those using foreign exchanges that don’t comply with Indian TDS norms, you must file Form 26QE. Here’s the workflow:

• Deduct 1% from the payment to the seller.
• Deposit this amount with the Income Tax Department using Challan ITNS 281.
• File Form 26QE online within 30 days from the end of the month in which the deduction was made.
• Issue a TDS certificate (Form 16A) to the seller.

Missing the deadline attracts interest at 1.5% per month and a penalty of ₹200 per day under Section 234E. For small traders, this administrative burden often outweighs the benefit of using P2P for better rates.

Can You Get the Money Back?

Yes, absolutely. Remember, TDS is not a final tax. It’s an advance payment. When you file your Income Tax Return (ITR), you calculate your actual tax liability. Since crypto gains are taxed at a flat 30% plus cess, your actual tax bill will likely be higher than the 1% TDS collected. You will pay the difference. If your total income is low enough that you fall into a lower tax bracket or have deductions that reduce your taxable income, you might actually get a refund for the excess TDS paid. Just make sure you report all your crypto transactions accurately in Schedule VDA of your ITR.

Common Mistakes to Avoid

Don’t assume the threshold resets every month. It’s annual. Don’t forget to include crypto-to-crypto swaps in your calculation of the ₹50,000 limit. And please, keep records. The tax department has access to blockchain data now. If your Form 26AS shows TDS credits but you didn’t report the corresponding sales in your ITR, you’ll get a notice. Also, beware of the "no loss offset" rule. You cannot set off losses from one crypto against profits from another crypto or other income sources. Each asset class is siloed. This makes the 1% TDS feel even heavier because you’re paying tax on gross turnover in many cases, while losing money on others.