The 1% crypto withholding, the thresholds, who deducts, and the cash-flow effect
Section 194S applies a 1% TDS on the transfer of a virtual digital asset above a small annual threshold. On an exchange, the exchange deducts and deposits it; in a peer-to-peer trade, the buyer is responsible for deducting it. The threshold is Rs 50,000 in a year for specified persons (such as individuals or HUFs not subject to tax audit, and below a turnover level) and Rs 10,000 for others. The 1% is not an extra tax, it is reclaimable against your final liability through your return, but because it applies to each transfer it can tie up a meaningful amount of capital across active trading.
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How the 1% works
When you transfer a VDA above the threshold, 1% of the consideration is withheld as TDS under Section 194S. On a centralised exchange, the exchange handles the deduction and deposit against your PAN, so it appears in your Form 26AS. In a peer-to-peer transfer, the buyer is the one legally required to deduct and deposit the 1%. The aim is to create a transaction trail for an otherwise opaque asset class, every taxable transfer leaves a 1% footprint.
The thresholds
The 1% bites above an annual threshold that depends on who you are. For specified persons, broadly individuals or HUFs who are not subject to tax audit and whose relevant turnover is modest, the threshold is Rs 50,000 in a financial year. For everyone else, it is Rs 10,000. Once you cross the threshold, the 1% applies to transfers. Note the threshold is low, so active traders will hit it quickly and have 1% withheld on each subsequent transfer.
tipReconcile the 194S TDS shown in your 26AS against your exchange statements, the 1% is fully reclaimable against your final tax, and unclaimed credit is money left with the department.
The cash-flow effect
Because 1% is withheld on each transfer (not just on the gain, and not just once a year), active trading steadily ties up capital. On high-frequency trading the cumulative withholding can be a significant share of working capital, even though it is reclaimable. It is reclaimed when you file: you total your tax (including the 30% on net VDA gains), subtract the 194S TDS, and the excess is refunded. So the 1% is a cash-flow cost during the year, not a permanent one, but it is real for active traders.
warningIn a peer-to-peer trade off an exchange, the buyer must deduct the 1% under Section 194S. If you buy crypto directly from another person above the threshold, the deduction duty is yours, not the seller's.
Income-tax Act 1961 s.194S (1% TDS on VDA transfer; thresholds Rs 50,000 / Rs 10,000) (TDS consolidated into the Income-tax Act 2025 s.393)
Income-tax Act 1961 s.115BBH (the 30% on which the 194S TDS is adjusted)
Frequently asked questions
How much TDS applies to crypto transactions?+
1% of the transfer value under Section 194S, once you cross the annual threshold (Rs 50,000 for specified persons such as non-audited individuals, or Rs 10,000 for others). On an exchange, the exchange deducts it; in a peer-to-peer trade, the buyer must. It is reclaimable against your final tax through your return.
Who deducts the 1% crypto TDS?+
On a centralised exchange, the exchange deducts and deposits the 1% against your PAN, so it shows in your Form 26AS. In a peer-to-peer transfer done off-exchange, the buyer is legally required to deduct and deposit it. So if you buy crypto directly from another person above the threshold, the deduction duty falls on you as the buyer.
Is the 1% crypto TDS an extra tax?+
No. It is a prepayment of your own tax, withheld against your PAN and reclaimable when you file. You total your tax (including the 30% on net VDA gains under Section 115BBH), subtract the 194S TDS, and any excess is refunded. It is a cash-flow cost during the year for active traders, not a permanent extra charge.
Does the 1% TDS apply to every crypto trade?+
It applies to transfers once you cross the annual threshold, which is low (Rs 50,000 or Rs 10,000). For an active trader that threshold is reached quickly, after which 1% is withheld on each subsequent transfer, including crypto-to-crypto swaps, which is why it accumulates and ties up capital across many trades.