1% TDS on Crypto in India, Explained for P2P Traders (2026)
The 1% TDS on crypto confuses a lot of Indian traders. Here is exactly what Section 194S means for P2P USDT trades — the ₹10,000 threshold, how it is deducted, why it is not an extra tax, and how it fits with the 30% rule and Schedule VDA.
If you trade crypto in India, two numbers govern your tax life: the 30% tax on gains and the 1% TDS on transactions. The 30% is well understood. The 1% TDS is where most P2P USDT traders get confused — is it an extra tax? Does it apply to every trade? Who deducts it? This guide clears it up.
None of this is tax advice. It is a plain-English explanation of the current rules so you can plan trades and keep the right records. For your specific situation, talk to a chartered accountant who handles crypto.
What the 1% TDS actually is
TDS stands for Tax Deducted at Source. Under Section 194S of the Income Tax Act, a 1% TDS applies to the transfer of virtual digital assets (VDAs) like USDT. Crucially, it is not a separate or additional tax — it is an advance payment of tax that is credited back against your total liability when you file your return. If your final tax works out lower, the excess TDS is refunded.
Think of it like TDS on a salary or a fixed deposit: money is withheld along the way, and it all reconciles at filing time.
When does it apply? The ₹10,000 threshold
The 1% TDS kicks in once your VDA transactions cross ₹10,000 in a financial year (the threshold is ₹50,000 for certain specified persons — typically individuals below the tax-audit limit). Below that, no TDS. Above it, 1% is deducted on the transfer.
For active P2P traders, that threshold is crossed quickly, so it is safest to assume TDS applies and plan for it rather than be surprised at year-end.
How it works on a P2P USDT trade
On a compliant P2P platform, the platform handles TDS deduction and issues the corresponding certificate, so your net proceeds are what lands after the 1% is set aside. You do not have to calculate or remit it manually on each trade.
Because TDS is on the transaction value, not the profit, it applies even on break-even trades — which is exactly why keeping it as a creditable advance (not an extra cost) matters. You reclaim it at filing.
How it fits with the 30% tax and Schedule VDA
The 30% flat tax (Section 115BBH), plus applicable surcharge and 4% cess, is levied on your gains from transferring VDAs. Unlike most assets, crypto losses cannot be set off against other income or carried forward to future years — each gain is taxed on its own.
Since the 2023 changes, gains and holdings are reported under Schedule VDA in your ITR, and the TDS you have already paid shows up as a credit. The Union Budget for 2026–27 kept this framework unchanged, so plan around it for the year ahead.
Keep clean records
The single best habit for an Indian crypto trader is record-keeping: date, INR value, counterparty, payment method, and the TDS certificate for every trade. When you buy or sell USDT peer-to-peer, that trail makes filing under Schedule VDA straightforward and protects you if questions arise. Trade on platforms that give you clean, exportable records and issue TDS certificates.