Section 194S (TDS on VDA transfers)

Section 194S of India's Income-tax Act, 1961 requires anyone paying for the transfer of a virtual digital asset to a resident to deduct tax at source (TDS) at 1% of the consideration. It came into effect on 1 July 2022, introduced by the Finance Act, 2022.

In practice, Indian exchanges deduct the 1% when you sell crypto for rupees, and on crypto-to-crypto trades TDS can apply to both legs. For "specified persons", broadly individuals and HUFs without business income or with turnover below audit limits, TDS applies only when total VDA payments in a financial year exceed ₹50,000; for others the threshold is ₹10,000.

TDS is not an extra tax: it is an advance payment that appears in your Form 26AS and Annual Information Statement (AIS), and you claim it as a credit when filing your return. It also leaves a trail of every sale for the tax department. Offshore exchanges often do not deduct it, in which case responsibility can fall on the buyer.