India’s Crypto Tax Trap: Why a Loss Can Still Mean a Tax Bill

If you’re an Indian crypto investor, even a bad year can leave you owing the taxman. Under India’s strict Virtual Digital Asset (VDA) laws, you could lose Rs 100 overall but still owe Rs 30 in tax.

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This counter-intuitive situation arises from Section 115BBH of the Income Tax Act, which treats crypto gains with a unique, rigid set of rules:

The Three Harsh Rules of Indian Crypto Tax

1. Flat 30% Tax Rate: All profits from the sale or transfer of any cryptocurrency are taxed at a flat rate of 30%, regardless of your income bracket or holding period.
2. No Set-Off of Losses: You cannot offset a loss from one crypto asset against a profit from another. If you make a profit on Bitcoin but a larger loss on Ethereum, you must ignore the loss and pay 30% tax on the Bitcoin profit.
3. No Deductions (Except Cost): You cannot deduct common costs like trading fees, gas charges, mining costs, or exchange commissions from your taxable gains. Only the initial cost of acquiring the asset is deductible.

The Real-World Impact

Imagine you make Rs 100 profit on one coin and Rs 200 loss on another. Your net loss is Rs 100.

• Under the law, the Rs 200 loss is ignored.
• You pay 30% tax on the Rs 100 profit → Rs 30 in tax.
• Your net financial outcome is now a Rs 130 loss (initial Rs 100 loss plus Rs 30 tax).

More Tax Burdens

• 1% TDS (Tax Deducted at Source): A 1% tax is deducted on every transaction over Rs 50,000 (or Rs 10,000 for non-specified persons), reducing liquidity for active traders—even if the trade is not profitable.
• 18% GST: An 18% GST is also levied on the service fees charged by crypto exchanges.

The Bottom Line:

The government aims to discourage speculative trading by taxing crypto like gambling winnings. However, experts argue the policy is one of the least investor-friendly globally, severely punishing genuine investors and potentially pushing liquidity to offshore exchanges. In the Indian crypto market, experts advise meticulous record-keeping, as even a loss can result in a significant tax liability.