Direct Answer: You cannot set off crypto losses in India because Section 115BBH of the Income Tax Act 1961 explicitly prohibits it. Losses from Virtual Digital Assets cannot reduce gains from other VDAs or any other income head, and they cannot be carried forward to future years. This rule has applied to every transaction since April 1, 2022.
- Key Takeaway 1: Section 115BBH explicitly prohibits setting off VDA losses against VDA gains or any other income head.
- Key Takeaway 2: Crypto losses cannot be carried forward to future assessment years under any provision.
- Key Takeaway 3: Every coin-to-coin trade (e.g., BTC to ETH) is a taxable event in India, even if you are sitting on an overall loss.
- Key Takeaway 4: The flat 30% tax rate on VDA profits applies regardless of your income slab or holding period.
- Key Takeaway 5: You must still report crypto losses in your ITR; hiding them creates compliance risk and could trigger a tax notice.
What Section 115BBH Actually Says About Crypto Loss Set Off in India
Section 115BBH was introduced via the Finance Act 2022 and came into effect from April 1, 2022. It taxes income from the transfer of any Virtual Digital Asset at a flat rate of 30% plus applicable surcharge and cess. The government brought all crypto, NFTs, and digital tokens under this single provision to standardise VDA taxation across the board.
Sub-section (2) of 115BBH is where the real restriction sits. It clearly states that no deduction in respect of any expenditure (other than cost of acquisition) or allowance shall be allowed. It also states that no loss from the transfer of a VDA shall be allowed to be set off against income from any other VDA or from any other source.
This is not ambiguous language. The provision directly overrides the general loss set-off and carry-forward rules under Sections 70 to 74 of the Income Tax Act. You can read more about how crypto is taxed in India to understand the full picture of what 30% VDA tax actually means for your returns.
Why the Government Chose This Structure for Crypto Loss Set Off in India
The Finance Ministry’s stated rationale, as documented in the Finance Bill 2022 Memorandum published by the Ministry of Finance on February 1, 2022, was to prevent misuse of crypto losses to reduce tax liability on other income sources like salary or business profits. Given that crypto markets are highly volatile and self-reported, the government opted for a clean, restrictive framework rather than a nuanced one.
The 1% TDS under Section 194S was introduced alongside this, with Indian exchanges like ZebPay and CoinDCX required to deduct tax at source on every qualifying transaction above Rs 10,000 (or Rs 50,000 for specified persons). According to the CBDT circular dated June 22, 2022 (Circular No. 13 of 2022), exchanges must deduct TDS even on coin-to-coin swaps using the rupee fair market value at the time of the transaction. According to the Press Information Bureau release dated February 1, 2023, VDA TDS collections under Section 194S crossed Rs 700 crore in the first year of implementation (FY 2022-23). According to the Finance Bill 2022 Memorandum, the government estimated that over 1 crore Indians had engaged in VDA transactions by the time the law was drafted, justifying a standardised flat-rate regime.
No Set-Off, No Carry-Forward: Worked Examples of Crypto Loss Set Off India Rules
Let’s make this concrete. Suppose you bought Bitcoin worth Rs 5 lakh on CoinDCX and sold it for Rs 3 lakh, booking a loss of Rs 2 lakh. In the same year, you also traded Ethereum and made a profit of Rs 4 lakh. Under normal income tax rules, you would expect to pay tax only on the net Rs 2 lakh gain. That logic does not apply here.
Under Section 115BBH, you pay 30% tax on the full Rs 4 lakh Ethereum profit, which works out to Rs 1.2 lakh in tax. The Rs 2 lakh Bitcoin loss is simply ignored for tax purposes. You cannot use it to reduce your Ethereum gain, and you cannot carry it forward to offset a future crypto profit next year.
Scenario Comparison Table: Crypto Loss Set Off India vs Normal Tax Rules
| Scenario | VDA Gain (INR) | VDA Loss (INR) | Taxable Income (INR) | Tax @ 30% |
|---|---|---|---|---|
| Normal Income Tax Logic (Sections 70-74) | 4,00,000 | 2,00,000 | 2,00,000 | 60,000 |
| Section 115BBH Reality | 4,00,000 | 2,00,000 | 4,00,000 | 1,20,000 |
| Only Loss, No Gain (FY 2024-25) | 0 | 3,00,000 | 0 | 0 (loss permanently wasted) |
| Loss in FY 2024-25, Gain in FY 2025-26 | 5,00,000 (next year) | 3,00,000 (prior year) | 5,00,000 (no carry-forward relief) | 1,50,000 |
The third and fourth rows illustrate the harshest outcome. If you only made losses in a financial year, you pay zero tax, but those losses are permanently wasted. They cannot reduce salary tax, business income, or future crypto gains in any subsequent year.
What About Mining Income or Staking Rewards?
Mining income and staking rewards are treated as income at the time of receipt, taxed at your applicable slab rate. When you later sell those coins, any gains are taxed at 30% under 115BBH. Losses on those sales still cannot be set off. This double-layer taxation catches many investors who mine or stake on Indian platforms like Mudrex.
The Coin-to-Coin Trading Trap and Crypto Loss Set Off India
Here is where many Indian retail traders get caught off guard. Swapping one cryptocurrency for another, say BTC to USDT or ETH to SOL, is treated as a transfer of a VDA under Indian law. That means it is a taxable event, even if you never touched Indian rupees.
If you swap Bitcoin purchased at Rs 30 lakh for Ethereum worth Rs 25 lakh at the time of the swap, you have booked a Rs 5 lakh loss. That loss is real in economic terms but has no value for tax purposes. And if that Ethereum later appreciates and you sell it for Rs 32 lakh, you pay 30% on Rs 7 lakh (the gain from the swap price), with no relief from the earlier Rs 5 lakh loss.
This is why crypto price recovery and tax implications in India can still leave Indian traders with a net tax liability higher than their actual economic gain across the full trade cycle. The tax is calculated transaction by transaction, not on your overall portfolio performance.
TDS on Every Swap Under Section 194S
Indian exchanges are required to deduct 1% TDS on the value of each VDA transfer under Section 194S. On coin-to-coin swaps, this TDS is calculated on the fair market value of the asset being transferred. As per CBDT Circular No. 13 of 2022, exchanges must deduct TDS even when no INR changes hands, using the rupee equivalent at the time of the transaction.
Can You Carry Forward Crypto Losses in India? The Short Answer Is No
The carry-forward provisions under Sections 70 to 74 of the Income Tax Act do not apply to VDA losses. Section 115BBH overrides those general provisions entirely. A loss you book on crypto in FY 2024-25 cannot reduce your crypto tax liability in FY 2025-26 or any future year. The loss is permanently extinguished with no mechanism for relief under current law.
This is a deliberate legislative choice, not an oversight. The Finance Bill 2022 Memorandum explicitly noted that the restrictive set-off rules were designed to prevent tax arbitrage through strategic loss booking in volatile digital asset markets.
How to Report Crypto Losses in Your ITR Anyway
Even though the crypto loss set off India rules offer no relief, you still need to report losses. Skipping loss transactions in your ITR creates a mismatch between your exchange records, TDS credits (Form 26AS), and what you file. That mismatch can trigger a scrutiny notice from the Income Tax Department.
Use Schedule VDA in ITR-2 or ITR-3, which was introduced specifically for crypto reporting from Assessment Year 2023-24 onwards. List every transaction, including loss-making ones, with the date of acquisition, date of transfer, sale consideration, and cost of acquisition. You report the loss, but it simply does not flow to any set-off column. Our complete ITR filing guide for crypto walks through exactly how to do this step by step.
Documents You Will Need
- Transaction history exports from WazirX, CoinDCX, ZebPay, or any other exchange you used
- Form 26AS and AIS (Annual Information Statement) showing TDS deducted under Section 194S
- Records of any P2P trades or international exchange transactions
- Wallet transfer logs if you moved assets between exchanges
If you used multiple exchanges or international platforms, reconcile all transactions before filing. The AIS now auto-populates some VDA data from exchanges that have reported TDS. Cross-check this against your own records because errors in AIS can inflate your apparent gains.
India’s regulatory stance on crypto remains cautious but increasingly structured. Crypto is legal in India in 2026, but it operates under strict tax and compliance rules. Non-disclosure is a far bigger risk than the tax itself.
Frequently Asked Questions
Can I set off crypto losses against crypto gains in India?
No. Section 115BBH(2) explicitly prohibits setting off any VDA loss against VDA gains or against income under any other head. Each profitable VDA transaction is taxed at 30% independently. Even if you lost money on Bitcoin in the same year you profited on Ethereum, you pay full tax on the Ethereum gain with no relief from the Bitcoin loss. This is the core rule governing crypto loss set off in India.
What does Section 115BBH say about crypto loss set off in India?
Section 115BBH of the Income Tax Act 1961, introduced via Finance Act 2022, taxes income from the transfer of Virtual Digital Assets at 30% plus surcharge and cess. Sub-section (2) bars any deduction except cost of acquisition and explicitly forbids set-off of VDA losses against any income, whether from other VDAs or other sources. The provision overrides the general set-off rules under Sections 70 to 74.
Can crypto losses be carried forward to the next year in India?
No. The carry-forward provisions under Sections 70 to 74 of the Income Tax Act do not apply to VDA losses. Section 115BBH overrides those general provisions. A loss you book on crypto in FY 2024-25 cannot reduce your crypto tax liability in FY 2025-26 or any future year. The loss is permanently extinguished with no relief mechanism under current law.
Are coin-to-coin trades taxed even if I am at a loss overall?
Yes. Every swap between two cryptocurrencies counts as a transfer of a VDA under Indian tax law. Each transaction is assessed independently. If one swap results in a gain, you pay 30% on that gain. The fact that another swap in the same portfolio resulted in a loss provides zero relief. The 1% TDS under Section 194S also applies to each qualifying swap at fair market value.
Should I still report crypto losses in my ITR even if I cannot use them?
Absolutely yes. Omitting loss transactions creates a discrepancy between your ITR, your Form 26AS TDS credits, and the AIS data that exchanges report to the Income Tax Department. This mismatch can trigger a scrutiny notice. Report all transactions in Schedule VDA, record the loss accurately, and accept that it has no set-off value under current crypto loss set off India rules.
Crypto investments carry significant market risk. Prices can fall sharply and without warning. This article is for informational and educational purposes only. It is not financial or tax advice. Please consult a qualified chartered accountant for advice specific to your situation. Last updated: July 2026. Reviewed by the CryptoWire editorial team.
