If the 30% capital-gains tax is the headline, the 1% TDS is the daily friction. Section 194S forces a 1% withholding on essentially every meaningful crypto trade, and the mechanics on P2P are non-obvious.
Who deducts what
On a centralised exchange's spot trade, the exchange deducts 1% TDS from the seller and remits it to the government against the seller's PAN. Simple.
On a P2P trade, statutory liability sits with the buyer of the crypto. Practically: when you BUY USDT from a merchant, you're meant to deduct 1% from what you pay them. Exchanges automate this in different ways — Binance and Bybit tax their KYC'd Indian users; smaller platforms may not.
Thresholds
The 1% TDS only kicks in above ₹50,000 of trading per financial year for 'specified persons' (most retail traders), or ₹10,000 per year for 'others' (businesses, professional traders meeting certain criteria). Most P2P traders cross either threshold within their first month.
How to claim it back
TDS deducted shows up in your Form 26AS or AIS (Annual Information Statement). When you file your ITR, the TDS amount reduces your final tax payable. If you didn't make crypto profits worth 30% of your trades, you'll get a refund — but you must file to claim it.
Critical: if you trade off-platform (e.g., direct UPI between friends without an exchange wrapper), the buyer is legally responsible for deducting AND remitting the 1% under their TAN. This is almost never done in practice; the gap is a common audit trigger.
Frequently asked
- Does the TDS apply on USDT-to-USDT swaps?
- Yes — any VDA-to-VDA transfer triggers 194S. Exchange engines deduct from both sides at 1% each on swap trades.
- What if my counterparty doesn't deduct TDS?
- On P2P, the buyer of crypto is legally on the hook. If you bought and didn't deduct, you owe interest and penalties on top of the 1%.
Key takeaways
- 1% TDS on every crypto transfer above thresholds (₹10k or ₹50k/year).
- On P2P, the buyer of crypto is the deductor in the eyes of the law.
- Exchanges automate this for KYC'd Indian users; off-platform trades create legal exposure.
- Claim the deducted TDS back via your ITR (Schedule VDA).
