How to Calculate Tax on Cryptocurrency Profits in India

How to calculate tax on cryptocurrency profits in India comes down to one formula most people get wrong at least once: it’s not your total portfolio gain, and it’s not based on what you eventually convert to rupees — it’s a flat 30% on every single profitable transfer, calculated transaction by transaction, with almost nothing you’re allowed to deduct along the way. Understanding that mechanic before you start trading saves a lot of confusion at filing time.

Here’s a detail that surprises even experienced investors: TDS can apply even when you’ve made an economic loss on a trade. Say you bought crypto for ₹10 lakh and sold it for ₹9 lakh — a genuine ₹1 lakh loss. The 1% TDS is calculated on the ₹9 lakh sale consideration, not on your profit, so ₹9,000 still gets deducted at the time of sale even though you lost money overall. That TDS is refundable when you file your return, but it’s cash tied up in the meantime, and plenty of traders don’t realize it’s coming.

The Basic Formula

Before touching any calculator, it helps to hold the actual formula in your head:

• Taxable gain = Sale consideration − Cost of acquisition
• Tax due = 30% of the taxable gain
• Cess = 4% of the tax due (not of the gain itself)
• Effective tax = Tax due + Cess, plus surcharge if your total income crosses certain thresholds
• TDS already paid = 1% of the sale consideration, credited against your final tax bill

Step-by-Step: How to Calculate Your Tax

Working through it in order avoids most of the common mistakes:

• Step 1 — List every VDA transfer during the financial year: sales, swaps, and any crypto spent on goods or services
• Step 2 — For each transaction, note the sale consideration (what you received) and the cost of acquisition (what you originally paid)
• Step 3 — Calculate the gain or loss for each transaction individually — remember, losses on one transaction cannot reduce gains on another
• Step 4 — Add up only the gains across all transactions — this is your total taxable VDA income for the year
• Step 5 — Apply 30% to that total, then add 4% cess on the resulting tax amount
• Step 6 — Add applicable surcharge if your overall income crosses the relevant threshold
• Step 7 — Subtract the TDS already deducted by your exchanges during the year — this reduces the amount you still owe
• Step 8 — Report the figures under Schedule VDA in your ITR-2 or ITR-3, depending on whether you’re treating it as capital gains or business income

Worked Example 1: A Simple Sale

Say you bought Bitcoin for ₹4,00,000 and sold it later in the same year for ₹5,00,000.

• Gain = ₹5,00,000 − ₹4,00,000 = ₹1,00,000
• Tax = 30% of ₹1,00,000 = ₹30,000
• Cess = 4% of ₹30,000 = ₹1,200
• Total tax owed = ₹31,200
• TDS already deducted = 1% of ₹5,00,000 = ₹5,000
• Balance payable after TDS credit = ₹26,200

Worked Example 2: A Crypto-to-Crypto Swap

This is the part beginners miss most often: swapping one coin for another is a taxable event too, even if you never convert to rupees.

• You hold Ethereum bought for ₹2,00,000
• You swap it for a stablecoin worth ₹2,60,000 at the time of the swap
• Gain = ₹2,60,000 − ₹2,00,000 = ₹60,000, taxable immediately at 30%, even though you’re still fully “in crypto”
• Tax = 30% of ₹60,000 = ₹18,000, plus 4% cess = ₹18,720 total

If you later sell that stablecoin for more or less than ₹2,60,000, that becomes a separate taxable transaction on its own, calculated independently.

What You Cannot Deduct

The list of allowed deductions is short, and it’s worth knowing exactly where the line sits:

• Allowed — only the original cost of acquisition (what you paid to buy the asset)
• Not allowed — trading or platform fees
• Not allowed — internet, electricity, or hardware costs even if you actively trade
• Not allowed — losses from other VDA transactions
• Not allowed — losses from non-crypto income categories, such as salary or other capital gains
• Not allowed — indexation for inflation, unlike some other capital asset categories

How the 1% TDS Fits In

TDS under Section 194S often confuses people because it feels like a second tax — it isn’t. It’s a prepayment mechanism:

• Standard threshold — TDS applies once total transfers cross ₹10,000 in a financial year for most individuals
• Higher threshold — ₹50,000 for “specified persons,” generally individuals or HUFs with business turnover above ₹1 crore or professional receipts above ₹50 lakh
• Who deducts it — the buyer or the exchange, at the time of payment, not the seller
• What happens to it — it shows up in your Form 26AS and gets credited against your final 30% tax liability when you file
• Refund scenario — if your TDS exceeds your actual tax owed for the year (common for traders with many losing trades mixed with a few winners), the excess is refundable

Surcharge Slabs for Higher Earners

Once your total income crosses certain levels, a surcharge applies on top of the base 30% tax:

Filing Your Return

A few practical notes for the filing process itself:

• Report crypto gains under Schedule VDA specifically, not mixed into general capital gains
• Use ITR-2 if you’re treating crypto activity as capital gains, or ITR-3 if it qualifies as business income based on your trading frequency and intent
• Cross-check the TDS figures in your Form 26AS against what your exchanges actually deducted, since discrepancies can trigger notices
• File before the deadline to avoid late fees, which scale based on your total income level
• Keep transaction-level records for every trade — exchanges increasingly share this data directly with tax authorities, so gaps between your filing and their reporting draw attention

This is a general explanation of how the calculation works, not personalized tax advice. Crypto tax filing involves individual circumstances — trading frequency, business classification, multiple exchange accounts — that a qualified chartered accountant should review before you file.

FAQs

Q1. Do I owe tax if I only swap one cryptocurrency for another, without converting to rupees?

Yes. Crypto-to-crypto swaps are taxable transfers under Section 115BBH, and any gain at the time of the swap is taxed at 30%, regardless of whether you convert to rupees.

Q2. Can I subtract my losing trades from my winning trades before calculating tax?

No. Each VDA transaction is taxed independently, and losses from one crypto trade cannot reduce the taxable gain from another, even within the same financial year.

Q3. Is the 1% TDS an additional tax on top of the 30%?

No. TDS is a prepayment credited against your final 30% tax liability, and any excess deducted beyond what you actually owe is refundable when you file your return.