1% Crypto TDS in India: Section 194S Explained

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.

What Section 194S requires

Section 194S requires tax to be deducted at source at 1% of the consideration when a Virtual Digital Asset is transferred. It came into force on 1 July 2022 and operates independently of the 30% charge under Section 115BBH.

Its purpose is visibility rather than revenue. A 1% deduction on each transfer creates a reporting trail, which is why it applies to the gross transfer value and not to profit — TDS is deducted even when the trade loses money.

The two thresholds

Category	Annual threshold
Specified person — individuals and HUFs whose business turnover does not exceed ₹1 crore, or professional receipts ₹50 lakh, in the preceding year, and those without business income	₹50,000
Everyone else	₹10,000

Most retail investors fall into the first category. Below the applicable threshold in a financial year, no TDS is required; once crossed, it applies.

Who actually deducts it

• On an Indian exchange: the exchange deducts and deposits it. You see it as a line item and it appears in your Form 26AS and AIS.
• P2P and peer transfers: the responsibility falls on the buyer or, where both are transferring VDAs, on both parties. See P2P trading tax in India.
• Foreign exchanges: an offshore platform has no Indian deduction obligation. The compliance burden does not disappear — it moves to you. See using foreign exchanges from India.

Claiming credit

TDS deducted is credited against your final liability. Check it against Form 26AS and the Annual Information Statement before filing — a mismatch between what an exchange reported and what you declare is one of the more common triggers for a query.

If your total tax liability for the year is less than the TDS deducted — which happens easily for high-volume, low-margin traders, since TDS is on turnover and tax is on profit — the excess is refundable.

Why high-frequency traders feel this most

Consider someone trading ₹50,00,000 of volume across a year with a net profit of ₹1,00,000. TDS at 1% of transfers is substantial relative to that profit, and the capital sits with the government until the return is filed and processed. The tax is not lost, but the working capital is tied up. This is the mechanism that materially reduced high-frequency activity on Indian exchanges after July 2022.

How TDS interacts with the 30% charge

These are two separate provisions doing different jobs and it is worth being precise about the difference. Section 115BBH is the charge — it decides how much tax you owe on your gain. Section 194S is a collection mechanism — it takes 1% of each transfer up front and credits it against whatever 115BBH eventually produces.

Because 194S applies to gross transfer value while 115BBH applies to net gain, the two can diverge sharply. A trader with high turnover and thin margins can have TDS exceeding their entire tax liability; a long-term holder who makes one large disposal will have TDS covering only a small fraction of what they owe, with the balance falling due as advance tax or at filing.

What to check on your exchange statement

• The TDS amount deducted per transaction and the cumulative figure for the year.
• The PAN against which it was deposited — an incorrect PAN means the credit does not reach you.
• Whether it appears in Form 26AS and the AIS; exchange-side reporting delays do occur.
• Whether both legs of a crypto-to-crypto swap were treated as transfers, as they generally should be.

A TDS credit that does not appear in Form 26AS is the taxpayer's problem to resolve at filing time, and resolving it means going back to the exchange. Checking during the year rather than in July is considerably easier.

Why the rate is 1% and not higher

A 1% rate on gross value was set deliberately low precisely because it applies to turnover rather than profit. Even at 1%, the cumulative drag on an active trading strategy is significant: a position turned over fifty times in a year attracts TDS on fifty transfers, and that capital is unavailable until the return is processed. This is the mechanism, more than the 30% headline, that changed Indian trading behaviour after July 2022.

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.