The three rules that make crypto different from every other asset
Most Indian assets — shares, mutual funds, property — are taxed on a sliding scale, let you offset losses, and reward holding for the long term. Virtual digital assets are governed by a separate, deliberately strict regime, and it ignores all of that.
The first rule is a flat 30% rate on the gain when you transfer a VDA (Section 115BBH), regardless of how long you held it or what slab your other income sits in. Surcharge and cess apply on top. The second rule is that no deduction is allowed except what you paid to acquire the token — no exchange fees, no interest, no other expenses come off the gain. The third rule is the one that catches people: losses cannot be set off and cannot be carried forward. A loss on one coin does not reduce a gain on another, and it does not roll into next year.
| The rule | What it means for you |
|---|---|
| Flat 30% (Section 115BBH) | Same rate however long you held it |
| Only cost is deductible | Fees and other expenses don't reduce the gain |
| No loss set-off or carry-forward | A losing trade can't soften a winning one |
The practical effect is that crypto is taxed transaction by transaction on the upside, with none of the smoothing that other investments get. Two trades in the same year — one up, one down — are taxed only on the one that went up.
The 1% deducted on every transfer (Section 194S)
Separate from the 30% on gains, there is a 1% tax deducted at source on the transfer of a VDA (Section 194S). It is a small slice taken on the transaction value — not on the profit — and on an Indian exchange the platform usually deducts and deposits it for you, so you may see it come off without doing anything.
The 1% is not an extra tax. It is an advance against your final liability: it shows up in your tax records, and you adjust it against the 30% you actually owe when you file. If too much was deducted across many trades — easy to happen if you trade often, since 1% is taken each time — the excess comes back as a refund once the return is filed.
Where the rules get fiddly is peer-to-peer transfers, foreign platforms, and trades where no Indian intermediary is in the middle. There, the obligation to deduct can fall differently, and a non-resident moving tokens between wallets needs to know whether a 194S deduction was missed rather than simply assume the exchange handled it. This is one of the places a CA earns their keep — reconciling what was actually deducted against what the return needs to show.
Which of your crypto income can India actually tax
Living abroad does not automatically put your crypto outside India's reach, and it does not automatically pull all of it in either. The answer turns on your residential status for the year and on where the income is treated as arising.
As a non-resident, India taxes income that is received in India or that accrues or arises in India. Gains realised on an Indian exchange, or from VDAs otherwise connected to India, generally fall within that net even though you live overseas. Income with no Indian source — say, trading on a purely foreign platform while you are a non-resident — is a different question and may sit outside India's claim. The line is not always obvious, which is exactly why it should be settled before you transact rather than argued afterwards.
The other half of the picture is your home country. Many countries tax their residents on worldwide crypto gains too, so the same disposal can be looked at by two tax systems. India's side is what a practising CA here handles — the 30% computation, the 194S reconciliation and the Indian return. How your country of residence treats the gain, and whether a tax treaty offers any relief, is settled on that side with your foreign adviser.
A worked example: selling tokens on an Indian exchange
Karan moved to Germany in 2024 and is a non-resident for the year. He still has two holdings on an Indian exchange: one coin he bought for ₹4 lakh and sells for ₹10 lakh, and another he bought for ₹3 lakh and sells for ₹1 lakh.
The winning trade has a ₹6 lakh gain, taxed at a flat 30% under Section 115BBH — about ₹1.8 lakh before surcharge and cess. The losing trade has a ₹2 lakh loss, and here the regime bites: that loss cannot be set off against the ₹6 lakh gain and cannot be carried forward, so it simply does not reduce his tax. Karan pays the 30% on the full ₹6 lakh as if the second trade never happened.
On each sale the exchange deducted 1% under Section 194S — roughly ₹11,000 across the two transactions — which is credited against his liability when he files. Because these are Indian-exchange disposals connected to India, the gain falls within India's net even though Karan now lives in Germany. His CA computes the ₹6 lakh gain, applies the 30%, sets the 194S credit against it, and files the Indian return; how Germany then treats the same gain is handled separately on the German side.