Section 194, Income-tax Act 2025: Tax on certain incomes

What changed when Section 115BBH became Section 194?

Almost nothing you can feel, and the numbers not at all. The 30% rate, the cost-only deduction, and the ban on setting off or carrying forward losses: every rule from Section 115BBH of the 1961 Act moves into the new Act intact. What changed is the address. The provision now sits as row 4 of a single table in Section 194, titled "Tax on certain incomes", which gathers six flat-rate incomes that used to have their own 115-series sections.

The tax on the gain and the tax withheld at the transfer live in different places, and mixing them up is the commonest error. The 30% charge is Section 194. The 1% TDS everyone knew as Section 194S is now a payment code in the Section 393 table, the new home of almost all TDS. Two numbers, one asset: the 30% is your actual tax on the profit, the 1% is only money collected in advance and credited straight back to you.

Section number cross-checked against published copies of the enacted Act. The 30% charge itself has been in force since 1 April 2022.†

What the law treats as a virtual digital asset

The definition is deliberately wide. A VDA is any information, code, number or token (not being Indian or foreign currency) generated through cryptographic means, together with non-fungible tokens and anything the government specifically notifies. In everyday terms it covers the whole crypto and NFT world, wherever you hold it.

What is inside the net, and what the government has kept out:

• In: cryptocurrencies such as Bitcoin, Ether and stablecoins, held on an exchange or in a private wallet.
• In: non-fungible tokens (NFTs) and similar unique digital tokens.
• In: any other digital asset the Central Government notifies as a VDA.
• Out: Indian rupees and foreign currency. Money itself is never a VDA.
• Out: gift cards and vouchers, mileage, reward and loyalty points, and paid subscriptions to a website, app or platform.

The carve-outs are set by CBDT Notification No. 74/2022 (30 June 2022), issued under the 1961-Act definition and carried into the new Act.†

How the flat 30% actually works

One rate, almost no reliefs. Section 194 taxes the gain on a VDA transfer at 30%, and the 4% health and education cess rides on top, so the real bite is 31.2% before any surcharge. Five features make it harsher than ordinary capital gains, and each one costs real money:

• Flat, not slab: the 30% ignores your bracket. A student in the nil slab and a director in the 30% slab pay the same 30% on a crypto gain.
• Only cost of acquisition comes off: what you paid for the coin, and nothing else. Exchange trading and withdrawal fees, transfer charges, internet and electricity bills, mining or hardware costs, and interest on money borrowed to buy are all non-deductible.
• No basic-exemption shelter: unlike a listed-share gain, a VDA gain is not reduced by any unused part of your ₹4,00,000 basic exemption. The 30% applies even when the gain is your only income.†
• No set-off: a loss on one VDA cannot be set against a gain on another VDA, let alone against salary, business income or share gains.
• No carry-forward: a VDA loss you cannot use dies with the tax year. It does not roll into the next one.

Why a losing coin cannot reduce a winning one

Because the law ring-fences each VDA gain and taxes it on its own. In ordinary investing a loss on one holding softens the gain on another, so you are taxed on the net. Section 194 switches that off for virtual digital assets: every gain is taxed at 30% in full, and any loss, even on another crypto, gives no relief at all.

Run the numbers. Say you made ₹1,00,000 on Bitcoin and lost ₹80,000 on Ether in the same year. Your real profit is ₹20,000. On listed shares you would be taxed on that ₹20,000. On crypto you are taxed on the full ₹1,00,000 at 30%, which is ₹30,000 plus cess, and the ₹80,000 loss simply vanishes. That is ₹31,200 of tax on a genuine gain of ₹20,000.

The design is deliberate, and it has one blunt planning consequence: realising a loser to "balance" a winner is pure economic loss under Section 194. The loss buys you nothing, this year or next, so a loss should be booked only if you actually want out of the asset.

The 1% TDS on every transfer

Separate from the 30%, a 1% tax is deducted at source on the money you receive for a VDA transfer. This is the rule introduced as Section 194S in 2022; under the 2025 Act it is a payment code in the Section 393 TDS table, in force from 1 April 2026. It is charged on the sale consideration, not the profit, so it can apply even on a loss-making trade.

The withholding starts once your transfers cross a yearly threshold: ₹50,000 for "specified persons" (broadly, individuals and HUFs without a large business or professional turnover) and ₹10,000 for everyone else. On an Indian exchange the platform deducts the 1% for you. In a peer-to-peer or wallet-to-wallet trade the buyer is meant to deduct it and deposit it, and a missed deduction becomes the buyer's liability with interest.

TDS is not an extra tax. It is money paid into your name that you claim back when you file: it appears in your Form 26AS and Annual Information Statement (AIS), and you set it against your final 30% bill, with any excess refunded. On a break-even or loss-making trade the 1% is fully refundable, but only through a return.

Getting or giving crypto as a gift

A gift of crypto is taxed, but in the hands of the person who receives it, not the giver. If you receive VDAs worth more than ₹50,000 in a year without paying for them (or for less than their value), the amount is taxed as your income from other sources at your slab rate. This is the old Section 56(2)(x) gift rule, now Section 92 of the 2025 Act, and "property" for that rule expressly includes virtual digital assets.†

The usual gift exemptions still apply: crypto received from a relative, on your marriage, under a will or by inheritance is not taxed on receipt, whatever its value. When you later sell a gifted VDA, the value that was taxed as a gift (or the giver's cost, for an exempt gift) becomes your cost of acquisition, and the 30% of Section 194 applies to the gain from there.

So gifting does not dodge the 30%. It only shifts who is taxed and when: a taxable gift is taxed once on receipt at slab rates, and again at 30% on any later gain when the receiver sells.

How to calculate your crypto tax, step by step

For each coin or token you sold during the tax year:

• Work out the gain on that asset: sale value minus its cost of acquisition (what you paid to buy it). Ignore exchange fees and every other cost; they are not deductible.
• Do this asset by asset. You cannot use a losing asset to reduce a winner, so add up only the gains.
• Tax each gain at 30%, then add 4% cess on the tax. That is your VDA tax for the year (surcharge applies on top only at higher total incomes).
• Subtract the 1% TDS already deducted on your transfers, taken from Form 26AS or your exchange statement. Pay the balance, or claim the refund if the TDS is more than the tax.

The crypto tax calculator linked below runs these steps and shows the balance or refund for your own figures.

How you report it: Schedule VDA

VDA income has its own schedule in the return. From the returns filed for FY 2022-23 onward, the ITR forms carry a Schedule VDA where you report each transfer: the date you acquired the asset, the date you sold it, the sale value and the cost. The portal applies the 30% and blocks any loss set-off automatically, so there is no way to net a loser against a winner even by mistake.

Reconcile three things before you file: your exchange's tax statement, the 1% TDS in your Form 26AS and AIS, and your own record of each trade. Because exchanges report your transfers to the department, an omitted trade is an easy mismatch to spot. Most crypto investors file ITR-2 (no business income) or ITR-3 (if the trading is a business); the ITR form finder below points to the right one.

What to actually do about the 30%

Treat every crypto sale as a fully taxed event and plan around three hard edges: the flat 30%, the stranded losses, and the 1% TDS. Holding period changes nothing here (there is no lower long-term rate and no indexation), so the only levers you control are when you realise a gain, how many losses you needlessly crystallise, and whether you claim back the TDS that is already yours.

Five moves that actually matter:

• Do not sell a loser to offset a winner. It offsets nothing under Section 194. On a ₹1,00,000 Bitcoin gain and an ₹80,000 Ether loss you still pay ₹31,200 (30% plus cess on the full ₹1,00,000) and forfeit the loss. Sell a loser only if you genuinely want out of it.
• Watch the ₹50,00,000 surcharge line on a big disposal. Under ₹50 lakh of total income no surcharge is added and the effective rate stays at 31.2%; a large one-off sale that pushes total income past ₹50 lakh lifts it to about 34.3%, and higher at the top bands. Spreading disposals you intend to make anyway across tax years can keep you below the line.
• Keep the cost trail. Cost of acquisition is the only deduction, so a missing purchase record turns a partly taxable gain into a fully taxed sale value. Save exchange contract notes and wallet records for every buy.
• Mind the ₹10,000 and ₹50,000 TDS thresholds on private trades. On an exchange the 1% is handled for you; trade peer-to-peer and the buyer must deduct and deposit it.
• File a return even in a losing year. The 1% TDS on your sales is refundable only through a return, so a year of pure losses (worth nothing against tax anyway) still needs filing to recover the TDS sitting in your 26AS.

The honest summary: no structure turns 30% into a slab rate. What you can control is not paying tax on money you never really made (do not churn losers) and not losing the 1% that is already yours (file, and claim it).

Worked examples

Section 194 FAQs

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