1% TDS on Crypto Transactions in India: What You Need to Know in 2025

On July 1, 2022, India started deducting 1% tax at the source on every crypto trade - no matter if you bought Bitcoin, swapped Ethereum for Solana, or spent Dogecoin on a coffee. It wasn’t a capital gains tax. It wasn’t an income tax. It was a 1% TDS - Tax Deducted at Source - and it changed how millions of Indians interact with crypto. If you’re trading on Indian exchanges like WazirX or CoinDCX, you’ve probably seen it: your buy order for ₹50,000 of BTC shows up as ₹49,500 in your wallet. That’s ₹500 gone before you even hold it. This isn’t a glitch. It’s the law.

What Exactly Is 1% TDS on Crypto?

TDS means the tax is taken out before you get the money. In crypto, that means when you sell, trade, or spend a digital asset, the exchange or platform automatically withholds 1% of the transaction value and pays it to the government. It applies to any transfer of ownership - selling BTC for INR, swapping ETH for ADA, even using crypto to pay for goods. But here’s the catch: transferring crypto between your own wallets doesn’t count. Only when ownership changes hands does TDS trigger.

The rule comes from Section 194S of the Income Tax Act, added in the 2022 Union Budget. It’s not meant to punish traders. The government says it’s about visibility. Before TDS, crypto transactions were mostly invisible to tax authorities. Now, every trade above a certain amount leaves a digital paper trail. That’s why the tax department calls it a "data capture mechanism."

Who Pays It? And When?

Not everyone pays TDS the same way. There are two thresholds:

• If you’re a regular individual or HUF (Hindu Undivided Family) and not required to get your accounts audited, TDS kicks in only if your total crypto transactions in a financial year (April 1 to March 31) exceed ₹50,000.
• If you’re a company, a business owner, or someone who is required to get audited, the threshold is much lower: ₹10,000 per year.

For example: If you’re a salaried employee and you bought ₹45,000 worth of crypto in a year, you owe zero TDS. But if you added ₹6,000 more later, you’ve crossed ₹50,000 - and now every single trade after that triggers 1% TDS, even if it’s just ₹100. The system doesn’t reset. Once you cross the limit, it’s on for the rest of the year.

And here’s the twist: In crypto-to-crypto trades, both sides pay 1%. So if you trade 1 BTC for 20 ETH, you pay 1% TDS on the value of the BTC you gave up, and the seller pays 1% on the value of the ETH they received. That means a ₹1 lakh trade can result in ₹2,000 total TDS - ₹1,000 from you, ₹1,000 from the other person.

What Happens If You Don’t Pay?

If you’re trading on Indian exchanges like CoinSwitch or ZebPay, you don’t have to do anything. The platform handles it automatically. But if you’re doing peer-to-peer (P2P) trades - buying directly from someone on Telegram or LocalBitcoins - you’re legally responsible for deducting and paying the TDS.

That means you need to:

1. Calculate 1% of the transaction value
2. Get the seller’s Permanent Account Number (PAN)
3. Deduct the tax before paying them
4. File Form 26QE within 30 days of the end of the month
5. Give the seller a TDS certificate within 15 days

This process can take 45-60 minutes per transaction. Most people don’t do it. That’s why the government slapped a penalty: if you didn’t file your income tax return in the last two years and your total TDS (from all sources) was over ₹50,000, you now face a 5% TDS rate on every crypto trade - not 1%. That’s a huge jump.

How Does This Compare to Other Taxes on Crypto in India?

TDS is just one layer. India has a brutal crypto tax structure:

• 30% tax on profits - every time you sell crypto for more than you bought it, you pay 30% on the gain. No deductions. No loss offsets. Even if you lost money elsewhere, you can’t use it to reduce this tax.
• 4% health and education cess - added on top of the 30%.
• 1% TDS - deducted upfront on every transaction.
• 18% GST on exchange fees - since July 1, 2025, platforms now charge GST on trading fees, withdrawal fees, and even staking rewards.

Let’s say you bought ₹1,00,000 worth of Ethereum and sold it for ₹1,20,000. Here’s what happens:

• At sale: ₹1,20,000 × 1% = ₹1,200 TDS deducted
• Profit: ₹20,000 × 30% = ₹6,000 income tax
• Cess: ₹6,000 × 4% = ₹240
• Exchange fee: ₹1,000 × 18% GST = ₹180

Total taxes paid: ₹7,620 on a ₹20,000 profit. That’s 38.1% of your gain - and you still lost ₹1,200 upfront before you even saw the money. This is why many traders say they’re being taxed twice - once at the point of trade, again on the profit.

Real Impact: Who’s Getting Hurt?

The policy was meant to bring transparency. But the side effects are real.

High-frequency traders - people who make 10-20 trades a day - are getting crushed. A trader doing 100 trades a month at ₹10,000 each pays ₹10,000 in TDS annually. That’s 10% of their trading capital evaporating before they even make a single profit. Many have switched to P2P trading to avoid it, but that brings its own legal risks.

According to a 2024 survey by ClearTax, 63% of salaried Indians stopped trading crypto after TDS kicked in. They said the "cumulative tax burden" was too high. Meanwhile, active traders found loopholes: splitting transactions under ₹50,000, using multiple wallets, or waiting until the new financial year to reset the threshold.

And then there’s the technical mess. In late 2023, CoinSwitch Kuber’s system glitched and applied double TDS to over 15,000 transactions. Users had to wait months for refunds. Form 26AS - the official tax statement where TDS credits appear - often takes 30-90 days to update. That means even if you paid correctly, the system doesn’t show it right away. Many people get flagged for "non-compliance" just because the data hasn’t synced.

What’s Next? The Future of Crypto Tax in India

The government isn’t backing down. In fact, it’s doubling down.

The 2025 GST clarification added 18% tax on exchange services - a move that makes India the only country with a dual tax system: TDS on trades + GST on platform fees. That’s unique. The U.S. taxes gains. Germany lets you hold tax-free after a year. Singapore doesn’t tax crypto at all. India taxes everything - the trade, the fee, the profit.

There are signs of change. The Finance Ministry received 142 stakeholder proposals in 2025 asking to raise the ₹50,000 threshold to ₹1,00,000. The National Payments Corporation of India (NPCI) is testing a pilot system called "Account Aggregation for Crypto" - set to launch in Q1 2026 - that could auto-report all crypto transactions to the tax department. If it works, TDS might become redundant.

But for now, the 1% TDS is here to stay. And with the proposed Digital Asset Bill 2025 still under review, there’s no clarity on whether this will be replaced, simplified, or made even stricter.

What Should You Do?

If you trade crypto in India:

• Track your total annual volume - use apps like Koinly or CoinTracker to auto-calculate your ₹50,000 or ₹10,000 threshold.
• Never ignore Form 26AS - check it every month. If TDS isn’t showing up after 60 days, contact your exchange.
• Keep records - save every transaction receipt, wallet address, timestamp, and counterparty PAN (if doing P2P).
• Don’t split transactions to dodge TDS - the tax department can see your wallet history. If they find patterns, you risk penalties.
• Consider professional help - if you trade more than ₹5 lakh a year, hiring a tax advisor (₹2,000-5,000/year) saves you from costly mistakes.

The 1% TDS isn’t about raising revenue - though it collected ₹1,852 crore in FY 2023-24. It’s about control. It’s about visibility. And whether you like it or not, it’s now part of the cost of doing crypto in India.