No Loss Offset Rule in India: How It’s Hurting Crypto Traders
7 February 2025

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Current Tax Rules

India's Section 115BBH(2)(b) treats gains and losses separately

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This calculator shows how India's 'no loss offset' rule affects your tax liability

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Note: Losses cannot offset gains under current Indian tax rules

Imagine you buy Bitcoin for ₹50,000 and sell it later for ₹70,000. You make a ₹20,000 profit. Easy, right? Now imagine you also bought Ethereum for ₹60,000 and sold it for ₹30,000-a ₹30,000 loss. Under normal tax rules, you’d net those together: ₹20,000 gain minus ₹30,000 loss = ₹10,000 net loss. You’d pay zero tax and might even carry that loss forward to offset future gains. But in India, that’s not allowed. Not even close.

The Rule That Doesn’t Let You Lose

Since April 2022, India has enforced a rule under Section 115BBH(2)(b) of the Income Tax Act: crypto losses cannot offset crypto gains. That means every profitable trade is taxed at 30%, no matter how many losses you’ve had. Even if you lost ₹1 lakh across 15 trades and made ₹1.2 lakh on one, you still pay ₹36,000 in tax on that single win. Your losses? Gone. Ignored. Erased.

This isn’t just unusual-it’s extreme. In every other asset class in India-stocks, mutual funds, real estate-losses can be used to balance out gains. Crypto is the only investment where the government treats losses like they never happened. And it’s not just about gains and losses. The rule applies to every single transaction: selling BTC for INR, swapping ETH for SOL, even buying a coffee with Litecoin. If there’s a gain, it’s taxed. If there’s a loss, you’re on your own.

What Gets Taxed-and What Doesn’t

The tax system doesn’t just ignore losses. It also ignores real costs. You can’t deduct gas fees, exchange fees, withdrawal charges, or even the cost of using a tax calculator. Only the original purchase price matters. So if you bought 0.1 BTC for ₹30,000 and paid ₹150 in fees to trade it for ETH, your cost basis is still ₹30,000. That ₹150? Disappeared. The tax department doesn’t care.

And then there’s the 1% TDS-Tax Deducted at Source. Since July 2022, every time you transfer crypto on an Indian exchange, 1% is automatically taken out, regardless of profit or loss. If you sell ₹100,000 worth of crypto for a ₹5,000 loss, you still lose ₹1,000 upfront. That’s money gone before you even file your return. And if you trade peer-to-peer? The buyer is legally required to deduct the 1% and deposit it with the government. If they don’t, you’re still liable.

How This Changes How People Trade

Traders in India aren’t just paying more tax-they’re changing their entire strategy. Many are avoiding frequent trading. Why? Because every trade triggers TDS and every gain triggers 30% tax. The risk-reward math no longer works for day traders. Instead, some are shifting to crypto futures, which aren’t classified as Virtual Digital Assets (VDAs) and therefore don’t trigger TDS or the 30% tax. Others are using offshore exchanges, but that comes with its own risk: under the Liberalised Remittance Scheme, any money sent abroad over ₹7 lakh per year attracts a 20% Tax Collected at Source (TCS). So you pay 30% on gains, 1% on every trade, and now 20% on moving your money out.

Some traders have simply stopped. A CoinSwitch survey in early 2025 showed that 42% of Indian crypto users reduced their trading frequency because of the tax burden. Others moved to staking or DeFi protocols, hoping to avoid taxable events-but even staking rewards are taxed as income when received. Airdrops? Taxed when they land in your wallet. Hard forks? Same thing. There’s no escape.

A leaking piggy bank of crypto losses draining into a black hole while gains turn into tax bills.

The Real Cost: When Losses Are Bigger Than Gains

Here’s a real example: A trader made ₹85,000 from selling Solana in March and lost ₹72,000 from selling Polygon in May. Net gain? ₹13,000. But under Indian rules, they owe 30% tax on ₹85,000-that’s ₹25,500. They paid ₹850 in TDS on the Solana sale and another ₹720 on the Polygon sale. Total cash out? ₹27,070. After all taxes and fees, they’re left with just ₹8,930 from a ₹13,000 net gain. That’s a 62% tax hit on their actual profit. And they can’t use that ₹72,000 loss to reduce next year’s taxes. It’s gone forever.

And if you lose crypto to a hack? Or accidentally send it to the wrong wallet? No deduction. No relief. The government doesn’t recognize theft or human error as a loss. You paid for it. You’re taxed on nothing. You just lost money and still owe tax.

Reporting Is a Nightmare

Filing taxes isn’t simple. You can’t use ITR-1 anymore. You need ITR-2 or ITR-3, and you have to fill out Schedule VDA-where you list every single crypto transaction: date, asset, buy price, sell price, fees, and whether TDS was deducted. One missed entry? Risk of penalty. One wrong value? Potential scrutiny. The Income Tax Department now cross-checks data from exchanges, wallet analytics tools, and even blockchain explorers. If your numbers don’t match, they can assess your income at 60% under Section 158B-retroactively, from February 1, 2025. That’s not a mistake. That’s a trap.

A seesaw with crypto gains and losses, frozen because a giant hand crushes the losses side under tax rules.

How India Compares to the Rest of the World

Globally, most countries treat crypto like other investments. In the U.S., you can offset crypto losses against crypto gains, and carry forward unused losses to reduce future taxes. In Germany, crypto held for over a year is tax-free. In Portugal, private crypto gains are exempt. Even Singapore, which doesn’t have capital gains tax, lets traders offset losses across asset classes.

India is the outlier. No carry-forward. No cross-category offset. No relief for losses. Just a flat 30% on every profit, no matter how small or how many losses you’ve had. Tax experts call it a “penalty on risk-taking.” The government’s argument is that crypto is speculative and needs to be controlled. But the result? It’s not controlling speculation-it’s punishing participation.

What’s Next for Indian Crypto Traders?

There’s no sign the government plans to change this. Budget 2025 didn’t offer relief-it added stricter penalties for undisclosed holdings. The message is clear: comply or face consequences. Tax advisors are seeing a surge in demand for crypto tax services. Traders are hiring specialists just to file correctly. Some are even restructuring their portfolios to minimize taxable events-like holding longer, avoiding small trades, or using non-crypto crypto products like ETFs (if they ever become legal).

But for many, the damage is done. The no loss offset rule didn’t just change tax policy. It changed behavior. It made trading feel like gambling with the odds stacked against you. It turned a tool for financial freedom into a source of stress, confusion, and loss. And the worst part? The people who lose the most aren’t the speculators-they’re the everyday traders trying to build wealth, one small trade at a time.

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