Why Crypto Losses Cannot Be Set Off in India

India taxes income from Virtual Digital Assets under Section 115BBH of the Income-tax Act 1961, introduced by the Finance Act 2022 and effective from Assessment Year 2023-24.

The rate is a flat 30% plus applicable surcharge and 4% cess, regardless of your income slab. A separate provision, Section 194S, requires 1% TDS on the transfer of a VDA, in force since 1 July 2022.

The rule

Section 115BBH(2) provides that no set-off of loss from the transfer of a Virtual Digital Asset is allowed against income under any other provision, and that such loss cannot be carried forward to subsequent assessment years.

This is unusually strict. For most asset classes, Indian tax law permits losses to be set off within the same head and carried forward for up to eight years. VDAs are carved out of both.

What this means in practice

Scenario	Treatment
Gain of ₹5,00,000 on BTC, loss of ₹5,00,000 on ETH, same year	Tax on the full ₹5,00,000 gain. The loss is not available.
Loss of ₹3,00,000 this year, gain of ₹3,00,000 next year	Tax on next year's full gain. This year's loss cannot be carried forward.
Crypto loss, salary income	No set-off against salary or any other head.
Crypto loss, equity capital gains	No set-off. The heads are separate.

The consequence people miss

Because each VDA transfer is computed separately and losses are unavailable, it is entirely possible to owe tax in a year when your portfolio ended down. A trader who made ₹10,00,000 on one position and lost ₹12,00,000 on another has a net loss of ₹2,00,000 and a tax liability on ₹10,00,000 — roughly ₹3,00,000 before cess.

That is not a drafting oversight; it is the intended effect of computing each transfer independently with no set-off.

What this changes about how records are kept

Under a normal capital gains regime, year-end netting means approximate records are often survivable. Under 115BBH they are not: every disposal is its own computation, so every disposal needs its own cost basis and date.

If you have traded across multiple exchanges or done any significant number of swaps, reconstructing this at filing time is the single most common source of both error and stress. Recording as you go — through a tracker that keeps per-transaction cost basis — is materially easier than reconstructing later.

Has this been challenged?

The severity of the no-set-off rule has drawn sustained criticism from industry bodies since 2022, and representations for relief have been made in successive pre-budget consultations. As of the 2026-27 financial year the provision stands as enacted. Treat any claim that it has changed with scepticism and verify against the current Act.

How this compares to other asset classes

The contrast makes the severity clearer. For listed equity, a short-term capital loss can be set off against short-term or long-term capital gains and carried forward for eight assessment years. For house property, losses can be set off against other heads within limits and carried forward. Business losses have their own set-off and carry-forward regime.

Asset	Set-off within head?	Carry forward?
Listed equity	Yes	Up to 8 years
Property	Yes, within limits	Up to 8 years
Business income	Yes	Up to 8 years
Virtual Digital Assets	No	No

VDAs are the outlier. Any strategy or intuition carried over from equity investing will produce the wrong answer here, which is the root of most of the errors seen on crypto returns.

What this does to tax-loss harvesting

Tax-loss harvesting — deliberately realising a loss to offset a gain — is a standard technique in equity portfolios. Under Section 115BBH it does nothing at all. Selling a losing position in March to reduce tax on a winning one achieves no tax benefit, and incurs 1% TDS on the transfer for nothing.

If you have read advice recommending this for crypto in India, it is either outdated or written for another jurisdiction. It is one of the few places where acting on generic international crypto tax advice produces a directly harmful result.

Does it apply per exchange or across all holdings?

The computation is per transfer, so the question of which exchange a trade happened on does not change the outcome. A gain on one platform cannot be reduced by a loss on another, in exactly the same way it cannot be reduced by a loss on the same platform.

Related guides

• Crypto tax in India: the complete guide
• Crypto tax calculator for India
• Tracking crypto for Indian tax records
• Best crypto exchanges in India

This page is educational and not tax advice. Indian tax law changes and individual circumstances differ. Confirm your position with a qualified chartered accountant before filing.