Section 194S explained: 1% TDS on crypto and how to get it back
What Section 194S says about 1% TDS on crypto in India, the ₹50,000 and ₹10,000 thresholds, who deducts it, P2P rules, refunds, and its new section number.
- Tax year 2026–27
If you've sold crypto on an Indian exchange, you've probably noticed 1% disappearing from every sale. That's TDS under Section 194S. It confuses many people because it applies even when you make a loss. Here's how it works and how to get excess TDS back.
What Section 194S says
Introduced by the Finance Act, 2022 and effective from 1 July 2022, Section 194S of the Income-tax Act, 1961 requires whoever pays you for a virtual digital asset (VDA) to deduct 1% tax at source on the payment and deposit it with the government.
In practice, on Indian exchanges, the exchange deducts it from your sale proceeds automatically.
The thresholds
TDS applies once the total paid to you in a financial year crosses:
- ₹50,000, where the payer is a "specified person" (broadly, an individual or HUF without business income above audit limits), or
- ₹10,000 in other cases.
Exchanges often deduct on every sale from the start because they can't easily track each user's threshold, so you'll usually see TDS on all sales.
TDS is on the sale value, not the profit
This is the part that surprises people.
| Example | |
|---|---|
| You bought for | ₹1,00,000 |
| You sold for | ₹80,000 (a loss) |
| TDS at 1% of sale value | ₹800 |
You lost money but ₹800 was still deducted. Because the loss can't be set off (see Section 115BBH), your tax on this sale is nil, so the ₹800 is refundable when you file your ITR.
Swaps and P2P trades
- Crypto-to-crypto swaps on an Indian exchange: the exchange typically deducts TDS in crypto or as an equivalent, since each swap is a transfer.
- P2P trades: the buyer is responsible for deducting 1% TDS. Many don't, which can lead to tax notices for buyers and mismatches for sellers. See P2P TDS for buyers.
- Foreign exchanges and DEXs: they generally don't deduct Indian TDS, but your gains are still taxable.
How to check and claim TDS
- Log in to the income tax e-filing portal and open your AIS and Form 26AS.
- Check the TDS entries from your exchange match your own records.
- File your ITR and report your VDA transfers in Schedule VDA.
- The TDS is credited against your total tax. If it's more than you owe, you get a refund.
Step-by-step: crypto TDS refund. Estimate yours with the TDS refund estimator.
Where the rule sits now: the Income-tax Act, 2025
From 1 April 2026, the Income-tax Act, 2025 replaced the 1961 Act. The TDS rule carried over:
| Rule | Income-tax Act, 1961 | Income-tax Act, 2025 |
|---|---|---|
| 1% TDS on VDA transfers | Section 194S | Section 393(1) |
| Thresholds (₹50,000 / ₹10,000) | Section 194S | Section 393(4) |
Your exchange statements may still say "194S". See the full section map.
Common mistakes
- Treating TDS as the final tax and not filing an ITR.
- Not claiming a refund after a loss-making year.
- Ignoring TDS mismatches in AIS. Fix them with your exchange before filing.
- Assuming no TDS means no tax on foreign exchanges or DEXs.
For your specific situation, check with a chartered accountant.
Frequently asked questions
Is TDS an extra tax on crypto?
No. TDS is an advance payment of your tax. It's credited against your final tax when you file your ITR, and any excess is refunded.
Why was TDS deducted when I sold at a loss?
TDS is 1% of the sale value, not the profit. It's deducted even on loss-making sales. If your total tax is lower than the TDS, you can claim a refund in your ITR.
Who deducts TDS on P2P crypto trades?
The buyer is responsible for deducting 1% TDS and depositing it. In practice many P2P buyers don't, which can create notices later. See our P2P TDS guide.
Do foreign exchanges deduct Indian TDS?
Generally no. You still owe tax on gains and must report them in Schedule VDA. Using foreign platforms can also trigger Schedule FA reporting.
Where do I see the TDS deducted from my crypto sales?
In your Annual Information Statement (AIS) and Form 26AS on the income tax e-filing portal, under TDS entries from your exchange.
Sources
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