194S TDS is a 1% deduction from the price paid to a resident who sells crypto, an NFT or any other virtual digital asset (VDA). The buyer, or the exchange that runs the trade, keeps back 1% and deposits it against the seller's PAN.
The deduction does not depend on profit. A loss-making sale still suffers 1%, because the rule tracks money changing hands, not gains. It sits apart from the 30% tax on VDA income, which the seller settles in the return. For how this fits with other deductions, see the other TDS sections hub.
Quick facts
Rate
1% of the sale considerationYearly limit, specified person
₹50,000Yearly limit, others
₹10,000Seller without PAN
20%Who deducts
The buyer, or the exchange when the trade runs through oneStatement
Form 26QE for specified persons; Form 26Q for othersUnder the 2025 Act
Now covered in the TDS table under section 393
194S TDS section: rate and yearly limits
| Type of buyer | Yearly limit before TDS | Rate with PAN | Rate without PAN |
|---|---|---|---|
| Specified person: individual or HUF with no business income, or with business turnover up to ₹1 crore (₹50 lakh for a profession) | ₹50,000 | 1% | 20% |
| Everyone else, including companies, firms and larger businesses | ₹10,000 | 1% | 20% |
The limit counts the total paid to all VDA sellers by that buyer during the financial year. Below it, nothing is deducted. Above it, 1% applies to the consideration. Exchanges usually deduct on every sale because their volumes cross the limit early.
How 194s of income tax act works on an exchange
Most retail trades go through an Indian exchange. The exchange matches buyer and seller, so it deducts the 1% from what the seller gets and files the TDS return. Neither trader has to act. Where a broker stands between the buyer and the exchange, the parties can agree in writing that the exchange alone deducts, so tax is not taken twice.
Peer-to-peer deals are different. If you buy coins straight from another person, you are the deductor once your yearly purchases cross the limit. When the price is paid in another coin, or in goods, the buyer must make sure the 1% reaches the government before handing over the asset.
Worked example with 1% TDS on crypto
A trader sells on an exchange. Meera sells tokens for ₹2,40,000 through an exchange in FY 2025-26. Her cost was ₹2,60,000, so she has a loss of ₹20,000.
Step 1: TDS at 1% of ₹2,40,000 is ₹2,400. Step 2: she gets ₹2,37,600 in her exchange wallet. Step 3: the ₹2,400 shows in her Form 26AS and AIS. Step 4: in her return she claims the ₹2,400 as tax already paid. Because the loss cannot be set off, her VDA tax is nil, so the ₹2,400 counts towards a refund or reduces tax due on other income.
A small business buys directly. A trading firm (not a specified person) pays ₹15,000 to an individual for an NFT. Its total VDA purchases for the year now pass ₹10,000, so it deducts ₹150 and pays ₹14,850.
194S TDS section head of income in the return
TDS under this section is credit, not income. The gain itself goes in the VDA schedule of the return, taxed at a flat 30% plus cess under section 115BBH of the 1961 Act for FY 2025-26. Investors usually report it under capital gains; frequent traders running it as a business may show it as business income. The rate stays 30% either way.
Only the cost of buying the asset can be deducted. Losses on one coin cannot be set off against gains on another or against any other income, and they cannot be carried forward. Salaried people with crypto sales cannot use ITR-1; they need a form with the VDA schedule, usually ITR-2 or ITR-3.
Deposit, statement and certificate
| Who deducted | Pay and report | Certificate |
|---|---|---|
| Specified person (no TAN needed) | Challan-cum-statement in Form 26QE, within 30 days from the end of the month of deduction | Form 16E |
| Exchange or other deductor with TAN | Deposit it by the 7th day of the following calendar month (30 April for March) with Challan 281; quarterly Form 26Q | Form 16A |
Late payment carries interest at 1.5% a month, and a late statement attracts the ₹200 a day fee, capped at the tax.
Tds 194s rules from tax year 2026-27
The Income-tax Act, 2025 has applied since 1 April 2026. VDA transfers now sit as one row of the section 393 deduction table, and the label is the tax year rather than the financial year. Sales made up to the close of FY 2025-26 belong to that year and stay under section 194S; sales from 1 April 2026 fall in tax year 2026-27 under the new Act. Look up the new form codes on the e-filing portal ahead of filing a statement for the new tax year.
| Point | FY 2025-26 | Tax year 2026-27 |
|---|---|---|
| Governing Act | Income-tax Act, 1961, section 194S | Income-tax Act, 2025, section 393 table |
| Year label | Financial year, with AY 2026-27 for the return | Tax year |
Mistakes traders and buyers make
| What went wrong | What to do |
|---|---|
| Thinking a loss means no TDS | TDS runs on the sale value; claim it back through the return |
| Buying peer to peer and not deducting | Track your yearly purchases; deduct once the ₹50,000 or ₹10,000 mark is crossed |
| Leaving the 1% credit unclaimed | Match the exchange statement with AIS and claim every rupee in the return |
| Filing ITR-1 with crypto gains | Switch to a form that carries the VDA schedule |
These notes explain the law in general terms and are not advice on your trades. Crypto tax rules have been amended more than once, so before acting, confirm the latest rule with your chartered accountant or read what the e-filing portal currently shows.
Sources we checked
- Income-tax Act, 1961, section 194S
- Income-tax Act, 1961, section 115BBH
- Income-tax Act, 2025, section 393
- Income-tax Act, 1961, section 206AA
Frequently asked questions
What is the 194s tds rate?
It is 1% of the price paid for the virtual digital asset. If the seller has not given a PAN, the deduction goes up to 20%.
Who is a specified person under section 194s of income tax act?
Any individual or HUF with no business or professional income, or one whose business turnover is up to ₹1 crore or professional receipts up to ₹50 lakh in the preceding year. Such buyers deduct only once yearly payments pass ₹50,000 and use Form 26QE without a TAN.
Do I pay 1% TDS even when I sell crypto at a loss?
Yes. The deduction is on the sale value, not the profit. The amount appears in your AIS and you claim it as tax paid in your return.
Under which head of income is the 194s tds shown?
The TDS is a credit against your tax, not an income head. The VDA gain is reported in the VDA schedule, usually under capital gains for investors, and taxed at 30% plus cess.
Is 194 s tds still deducted after 1 April 2026?
Yes. Under the Income-tax Act, 2025, crypto and other VDA sales appear in the section 393 table at the same 1% rate. Deductions for FY 2025-26 stay under section 194S.