What is TDS on Crypto (Section 194S)?
Tax Deducted at Source of 1% on the transfer of a virtual digital asset in India, in force since 1 July 2022.
TDS on Crypto (Section 194S): Tax Deducted at Source of 1% on the transfer of a virtual digital asset in India, in force since 1 July 2022.
What it is
Section 194S of the Income-tax Act requires 1% of the consideration to be deducted and deposited whenever a virtual digital asset is transferred. It came into effect on 1 July 2022.
The critical feature is that it applies to the gross transfer value, not to profit. TDS is deducted whether the trade made money or lost it.
Thresholds
| Category | Annual threshold |
|---|---|
| Specified person — most individual investors | ₹50,000 |
| Everyone else | ₹10,000 |
Who deducts it
- Indian exchanges deduct and deposit it automatically; it appears in your Form 26AS.
- P2P trades place the obligation on the buyer, or on both parties where both transfer VDAs.
- Foreign exchanges have no Indian deduction obligation, which moves the compliance burden to you.
It is not an extra tax
This is the most common misunderstanding. TDS is not additional to the 30% charge — it is tax collected in advance and credited against your final liability. If the TDS deducted exceeds what you owe, the excess is refundable when you file.
Why it changed trading behaviour
Because it applies to turnover rather than profit, the cost scales with how often you trade rather than how well. A trader who turns over capital fifty times in a year has TDS deducted fifty times, and that capital is unavailable until the return is filed and processed.
For high-frequency, thin-margin strategies, TDS can exceed total profit — not as a permanent cost, since it is creditable, but as a working capital constraint that makes the strategy unviable. This, more than the headline 30%, is what reduced high-frequency activity on Indian platforms after July 2022.
What to check
Reconcile the TDS on your exchange statements against Form 26AS and the Annual Information Statement before filing. A mismatch is among the most common triggers for a query from the department, and it is far easier to resolve with the exchange during the year than afterwards.
What appears in your Form 26AS
TDS deducted under Section 194S is deposited against your PAN and appears in Form 26AS and in the Annual Information Statement. This is how the department sees your crypto activity on Indian platforms, and it is why a return omitting those transactions is so easily identified.
The practical point: check that the PAN the exchange holds is correct. TDS deposited against a wrong or missing PAN does not reach you, and recovering it afterwards is considerably harder than correcting the detail during the year.
Refunds where TDS exceeds liability
For a high-turnover, low-profit trader, TDS can easily exceed the final tax due. That excess is not lost — it is refunded after the return is filed and processed — but it is unavailable in the meantime.
This creates a working capital cost that scales with trading frequency rather than profitability, and it is the main reason active strategies became harder to run from Indian platforms after July 2022. Anyone planning a high-frequency approach should model the capital tied up in TDS, not just the tax rate.
Related terms
Educational content, not financial or tax advice. Indian tax rules change — confirm your position with a qualified chartered accountant.
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