In India, the 1% Tax Deducted at Source (TDS) on crypto transactions is not a final tax but a mechanism for the government to track digital asset movements. If your total tax liability for the financial year is lower than the amount of TDS collected, you can claim a refund.
Verify Your TDS Credits
Before filing, ensure all tax deducted by exchanges is reflected in your official records:
- Form 26AS: Log in to the e-Filing portal and download your Form 26AS. This document shows the total tax deducted by various entities under your PAN.
- AIS (Annual Information Statement): Check the AIS on the income tax portal for a detailed breakdown of your crypto sell transactions and the corresponding 1% TDS.
Calculate Total Tax Liability
Determine if you are actually eligible for a refund:
- Total Income: Add up your income from all sources (salary, business, etc.).
- Crypto Gains: Calculate your net profit from crypto. Note that under Section 115BBH, crypto gains are taxed at a flat 30%, and you cannot offset losses from one coin against gains from another.
- Refund Eligibility: If the 1% TDS already paid exceeds your total calculated tax (including the 30% on crypto profits), the difference is refundable. If your total annual income is below the basic exemption limit (e.g., ₹2.5 lakh or ₹3 lakh depending on the regime), you may be eligible to claim back the entire TDS amount.
File the Correct Income Tax Return (ITR)
To claim the refund, you must file your tax return within the deadline:
- Choose the Form: Typically, taxpayers with crypto income use ITR-2 (for individuals/HUFs not having business income) or ITR-3 (for those with business income).
- Schedule VDA: Fill out the specific Schedule for Virtual Digital Assets (VDA) to report your transactions.
- TDS Schedule: Ensure the TDS details from Form 26AS are correctly imported into the TDS schedule of your ITR.
Step 4: Verify and Wait for Processing
- e-Verify: After filing, you must e-verify your return (using Aadhaar OTP or net banking) within 30 days.
- Processing: The Income Tax Department will process your return. If your claim is valid, the refund will be credited directly to your validated bank account.
Important Restrictions
- No Offset of Losses: You cannot avoid paying the 30% tax on gains just because you have 1% TDS credits if your overall crypto activity was profitable.
- Filing is Mandatory: You cannot get the 1% TDS back without filing an ITR, even if your total income is zero.
Do you need help identifying which ITR form is right for your specific mix of salary and crypto income?
