Quick answer: Section 194S puts a 1% TDS on the price you pay when you buy crypto, an NFT or any other virtual digital asset from a resident seller. The TDS starts once your total VDA purchases in the year cross Rs 50,000 (Rs 10,000 for companies and other non-specified buyers). It is not an extra tax — you claim it back as credit when you file your ITR.
If you trade crypto on an Indian exchange, you have probably seen it already: you sell Rs 10,000 of Bitcoin and only Rs 9,900 reaches your wallet. That missing Rs 100 is not a fee and not a scam. It is TDS under Section 194S of the Income-tax Act.
This guide explains the rule in plain words — the 1% rate, the Rs 50,000 and Rs 10,000 thresholds, who has to deduct it, what happens on swaps and P2P deals, Form 26QE, and how to claim the money back in your ITR. The 30% tax on crypto gains is a separate rule, covered in our crypto tax guide. This article is only about the 1% TDS.
What is Section 194S?
Section 194S was inserted by the Finance Act, 2022 and came into force on 1 July 2022. It says that any person who pays consideration for the transfer of a virtual digital asset (VDA) to a resident must deduct tax at source at 1% of the consideration.
A VDA is defined in Section 2(47A) of the Act. It covers:
- Cryptocurrency such as Bitcoin and Ethereum
- Non-fungible tokens (NFTs)
- Any other digital asset the government notifies as a VDA
The section applies to the buyer — the person paying the consideration. If you buy crypto on an exchange, the exchange deducts it for you. If you buy directly from another person (a P2P deal), you are the deductor and the duty falls on you.
Note that Section 194S applies only when the seller is a resident of India. Payments to a non-resident seller fall under Section 195 instead — see our guide on TDS on sale of property by NRI for how Section 195 works.
What is the TDS rate under Section 194S?
The rate is a flat 1% of the consideration — the full price of the transfer, not the profit on it. There is no surcharge and no health and education cess added to this 1%.
That last point catches many people out. The TDS is charged on the sale value, so it applies even when you sell at a loss:
- You sell Bitcoin worth Rs 1,00,000. The exchange deducts Rs 1,000 as TDS.
- It does not matter whether you bought that Bitcoin for Rs 80,000 (a profit) or Rs 1,20,000 (a loss). The TDS is Rs 1,000 either way.
The deduction happens at the earlier of credit or payment. On an exchange, that means the TDS is cut at the moment the trade executes, not when you withdraw money to your bank account.
GST and exchange commission are not part of the consideration. CBDT Circular 13/2022 says the TDS is worked out on the net consideration after leaving out GST and charges the deductor levies for its service.
What is the threshold limit for TDS on crypto?
No TDS is deducted until your total VDA purchases in the financial year cross a threshold. The threshold depends on who is paying:
| Buyer (payer) | No TDS if total VDA consideration in the year does not exceed |
|---|---|
| Specified person — an individual or HUF with no business or professional income, or with business turnover up to Rs 1 crore / professional receipts up to Rs 50 lakh in the preceding year | Rs 50,000 |
| Any other person — companies, firms, LLPs, and individuals or HUFs above those turnover limits | Rs 10,000 |
Most retail investors are specified persons. If you are salaried and have no business income, your threshold is Rs 50,000 a year.
Is the threshold per trade or per year?
Per year — and it is the aggregate of all your VDA purchases in the financial year, not a limit on each trade. Small trades add up.
Does TDS apply to the full amount once the threshold is crossed?
Yes. Once the year’s total crosses the threshold, 1% applies to the whole aggregate, not only to the part above the threshold. CBDT Circular 13/2022 gives this exact example: a specified person buys Bitcoin for Rs 40,000 in June and Rs 20,000 in August. The year’s total is Rs 60,000, which crosses Rs 50,000, so TDS is 1% of Rs 60,000 = Rs 600, deducted from the August payment.
That is why a trade that looks small can still trigger a deduction — it is the running total for the year that matters, not the size of one trade.
Who is a “specified person”?
The term comes straight from the section. You are a specified person if you are an individual or HUF and either:
- You have no income under the head “profits and gains of business or profession” at all — most salaried people and pensioners fall here; or
- Your business turnover did not exceed Rs 1 crore, or your professional receipts did not exceed Rs 50 lakh, in the financial year immediately before the year of the transfer.
If your turnover is above those limits, or you are a company, firm or LLP, your threshold is Rs 10,000.
Who deducts the TDS — you or the exchange?
It depends on how the trade happens. CBDT Circular 13/2022, dated 22 June 2022, sets out the mechanics:
- Trade on an Indian exchange (WazirX, CoinDCX, CoinSwitch and others): the exchange deducts the 1% and deposits it. You do nothing — the cut shows up in your trade history and later in your Form 26AS and AIS.
- P2P deal (buying directly from another person): the buyer deducts. If you are a specified person, you deposit the tax with Form 26QE, a challan-cum-statement that needs no TAN. If you are not a specified person, you need a TAN and report through the regular quarterly return.
- Trade through a broker: the broker is the deductor when it is the one paying the consideration for the transfer.
In practice, almost all retail TDS is deducted by exchanges, which is why most people never file anything for it. The P2P duty is the part people miss — and the part that can draw a notice, because the seller’s PAN shows a VDA credit with no matching TDS. Online sellers face a parallel rule — Section 194O puts 0.1% TDS on e-commerce sales — explained in our Section 194O guide.
Does TDS apply on crypto-to-crypto swaps?
Yes. Swapping one VDA for another — say ETH for SOL — is a transfer of a VDA, so Section 194S applies. Under Circular 13/2022, the exchange deducts TDS on the INR value of the VDA you gave up, not on the one you received.
The same logic covers spending crypto. Paying for a service or a product with crypto is a transfer of the VDA, and the value of what you paid is the consideration for TDS.
What if the payment is fully or partly in kind?
This is common in swaps, where no cash changes hands. The section says that where the consideration is wholly or partly in kind, the person paying must make sure the tax has been paid before releasing the consideration. On an exchange, the platform handles this by cutting the 1% from your balance. In a P2P swap, the buyer must deposit the tax first and only then complete the transfer.
What is Form 26QE and who files it?
Form 26QE is the challan-cum-statement a specified person uses to deposit crypto TDS. It is one form that does both jobs — the tax payment and the statement — so there is no separate quarterly return for it. You do not need a TAN; your PAN is enough. It is filed on the income tax e-filing portal through e-Pay Tax.
| Point | Rule |
|---|---|
| Who files | Specified person (individual/HUF) buying a VDA in a P2P deal |
| TAN needed | No — PAN is enough |
| Due date | Within 30 days from the end of the month in which the TDS was deducted (TDS deducted in May must be deposited by 30 June) |
| Certificate to seller | Form 16E, within 15 days from the due date of Form 26QE |
| From 1 April 2026 | Form 26QE is replaced by the challan-cum-statement in Form 141 (same 30-day deadline); Form 16E is replaced by the certificate in Form 132 |
If you are not a specified person — a company, firm, or an individual above the turnover limits — the normal TDS route applies: you need a TAN, deposit the tax by the 7th of the next month (30 April for March deductions), report it in the quarterly return Form 26Q, and issue Form 16A. From tax year 2026-27, Form 26Q becomes Form 140 and Form 16A becomes Form 131. The challan is ITNS 281 (ITNS 281N for tax years from 2026-27).
Exchanges file a separate quarterly statement, Form 26QF, for the VDA transactions they facilitate.
What if the seller does not give a PAN?
If the seller has not furnished a PAN, the TDS rate jumps to 20% under Section 206AA. From 1 April 2026, this rule sits in Section 397(2) of the Income-tax Act, 2025.
One change that helped traders: the higher TDS rate for people who had not filed ITRs, under the old Section 206AB, was removed from 1 April 2025. A flat 1% now applies to everyone, whatever their ITR filing history. Always collect the seller’s PAN in a P2P deal — a missing PAN turns a Rs 1,000 deduction into Rs 20,000 on a Rs 1,00,000 trade.
Is the 1% TDS an extra tax?
No. The 1% is an advance payment of your final tax, not a charge on top of it. It is fully adjustable against the tax you finally owe, and you claim credit for it when you file your return.
How the two layers fit together:
- 30% tax under Section 115BBH applies to your gain from transferring a VDA, plus 4% cess. Only the cost of acquisition is deductible. Losses cannot be set off against any income and cannot be carried forward.
- 1% TDS under Section 194S applies to the full sale value of every transfer above the threshold.
- When you file, the TDS you already paid is subtracted from your final tax bill. If the TDS is more than your total tax, you get the excess back as a refund.
The TDS credit appears against your PAN in Form 26AS and the AIS. Check both before you file, and claim the credit under Schedule TDS in ITR-2 or ITR-3 — ITR-2 if you hold crypto as an investor, ITR-3 if your trading is frequent enough to count as a business. If the credit is missing from 26AS, ask the exchange for the TDS certificate first; do not claim credit that the system cannot see.
What changed in 2025 and 2026?
| Item | Before | Now |
|---|---|---|
| TDS rate | 1% since 1 July 2022 | 1% — unchanged |
| Thresholds | Rs 50,000 / Rs 10,000 since 1 July 2022 | Unchanged |
| Higher rate for ITR non-filers (206AB) | Applied till 31 March 2025 | Removed from 1 April 2025 |
| Section number (from 1 April 2026) | Section 194S, 1961 Act | Section 393(1), Table Sl. No. 8(vi), Income-tax Act, 2025 |
| 30% VDA tax section (from 1 April 2026) | Section 115BBH, 1961 Act | Section 194 (special-rates table), Income-tax Act, 2025 |
| Specified-person form (from 1 April 2026) | Form 26QE | Form 141 (challan-cum-statement) |
| TDS certificate (from 1 April 2026) | Form 16E | Form 132 |
| Quarterly return (from 1 April 2026) | Form 26Q | Form 140 |
| No-PAN rate (from 1 April 2026) | Section 206AA — 20% | Section 397(2) — 20% |
| Exchange reporting (from 1 April 2026) | No standing reporting duty | Section 509 — exchanges and custodians must file a statement of crypto-asset transactions |
Rates and thresholds did not change. Only the section numbers, form numbers and the new reporting duty changed.
Worked examples
Example 1 — One purchase above the threshold
Rahul is salaried with no business income, so he is a specified person. In May 2026 he buys Bitcoin worth Rs 1,00,000 on an exchange. His total VDA purchases for the year are already above Rs 50,000, so TDS applies.
- TDS = 1% of Rs 1,00,000 = Rs 1,000
- The exchange credits Rs 99,000 worth of Bitcoin to his wallet and deposits Rs 1,000 as TDS.
Example 2 — Small trades that add up (P2P)
Meera, also a specified person, buys crypto directly from a friend: Rs 40,000 in June and Rs 20,000 in August.
- June: year’s total is Rs 40,000 — below Rs 50,000, so no TDS.
- August: year’s total becomes Rs 60,000 — above the threshold. TDS is 1% of the whole Rs 60,000 = Rs 600, deducted from the August payment. Her friend receives Rs 19,400.
- Meera deposits Rs 600 through Form 26QE by 30 September (30 days from the end of August) and gives Form 16E to her friend within 15 days after that.
Example 3 — Profit: TDS adjusted against the 30% tax
Amit buys Bitcoin for Rs 5,00,000 and sells it for Rs 8,00,000.
- Gain = Rs 8,00,000 − Rs 5,00,000 = Rs 3,00,000
- Tax at 30% = Rs 90,000; plus 4% cess = Rs 93,600
- TDS on the sale = 1% of Rs 8,00,000 = Rs 8,000 (deducted by the exchange)
- Net tax to pay with the return = Rs 93,600 − Rs 8,000 = Rs 85,600
Example 4 — Loss: TDS still applies, refund follows
Sana buys Ethereum for Rs 2,00,000 and sells it for Rs 1,50,000 — a loss of Rs 50,000.
- TDS = 1% of Rs 1,50,000 = Rs 1,500, deducted even though she lost money. The loss cannot be set off against any other income.
- If she has no other taxable income, she claims the Rs 1,500 back as a refund in her ITR.
Common mistakes to avoid
- Thinking TDS applies only on profit. It applies on the full sale value, profit or loss.
- Treating the threshold as per-trade. It is the aggregate of all VDA purchases in the year. Five trades of Rs 12,000 each cross the Rs 50,000 limit.
- Forgetting swaps. A crypto-to-crypto swap is a transfer. The exchange deducts TDS on the value of the coin you gave up.
- Ignoring P2P duty. On an exchange the platform deducts for you. In a direct deal, the buyer must deduct and deposit through Form 26QE.
- Not checking Form 26AS before filing. Claim only the TDS credit that actually shows against your PAN, or the return will show a mismatch.
- Skipping the PAN check. No PAN from the seller means 20% TDS instead of 1% — a costly miss on a large trade.
- Mixing up the 1% with the 30%. The 1% is a prepayment that you adjust in your return. The 30% is the actual tax on the gain.
Frequently asked questions
What is Section 194S in simple words?
Section 194S is the rule that puts a 1% TDS on crypto and NFT deals. When you pay someone for a virtual digital asset, you (or the exchange you trade on) must cut 1% of the price and deposit it with the government. It started on 1 July 2022 under the Finance Act, 2022.
What is the TDS rate on crypto in India?
The TDS rate is a flat 1% of the consideration — the full value of the transfer. No surcharge and no cess are added. If the seller has not given a PAN, the rate is 20% under Section 206AA.
What is the threshold limit for TDS on crypto?
For a specified person — broadly, an individual or HUF with no business income or with business turnover up to Rs 1 crore (professional receipts up to Rs 50 lakh) in the previous year — the threshold is Rs 50,000 of total VDA consideration in the financial year. For everyone else, including companies and firms, it is Rs 10,000. Once the year’s total crosses the limit, 1% applies to the whole aggregate.
Is TDS deducted on crypto even if I make a loss?
Yes. TDS is charged on the sale value, not on the profit, so a loss-making sale still attracts 1% TDS once the threshold is crossed. The loss itself cannot be set off against other income, but the TDS is still your money — claim it as credit or refund in your ITR.
Does TDS apply on crypto-to-crypto swaps?
Yes. Swapping one VDA for another is a transfer, and CBDT Circular 13/2022 says TDS applies on the INR value of the VDA you transferred. On an exchange the platform deducts it. In a direct swap, the buyer must make sure the tax is paid before the swap is completed.
How can I claim a refund of crypto TDS?
Check that the TDS shows in your Form 26AS and AIS, then claim it under Schedule TDS in your ITR (ITR-2 as an investor, ITR-3 if trading is your business). If your total tax for the year is less than the TDS deducted, the excess comes back as a refund after processing.
What is Form 26QE?
Form 26QE is the challan-cum-statement a specified person uses to deposit crypto TDS on a P2P purchase, without needing a TAN. It must be filed within 30 days from the end of the month in which the TDS was deducted. From 1 April 2026 it is replaced by Form 141.
Do I need to pay TDS if I only hold crypto and never sell?
No. TDS under Section 194S applies only on a transfer of a VDA — a sale, swap or payment in crypto. Simply holding crypto, or moving it between your own wallets, is not a transfer for consideration and attracts no TDS. The 30% tax also applies only when you transfer.
By the numbers
- 1% — flat TDS rate on VDA transfers since 1 July 2022 (Finance Act, 2022)
- Rs 50,000 / Rs 10,000 — annual thresholds for specified persons and others (CBDT Circular 13/2022)
- 30% + 4% cess — tax on VDA gains under Section 115BBH; no set-off of losses
- 20% — TDS rate if the seller gives no PAN (Section 206AA)
- 30 days — deadline to deposit P2P TDS through Form 26QE, counted from the end of the month of deduction
Official sources
- Income Tax e-Filing portal — incometax.gov.in
- CBDT / Income Tax Department circulars and TDS provisions — incometaxindia.gov.in
- TRACES (TDS certificates and statements) — tdscpc.gov.in
Reviewed by Asuthod Rathod, CA. Last updated: 12 November 2026.
Disclaimer: This article explains Section 194S in simple words for general information. Tax rules change through Finance Acts, circulars and notifications. Verify the current position on the official portals linked above or consult a qualified tax professional before acting on a large transaction.
Editorial byline for eircicai income tax guides — covering the Income Tax Act, 2025, section renumbering, regime comparison, and deductions. Content is reviewed by Asuthod Rathod, CA.