No Loss Offset Rule in India: How It Hits Crypto Traders Hard

Imagine you make ₹100,000 trading Bitcoin but lose ₹80,000 on Ethereum in the same year. In most countries, you’d pay tax only on your net gain of ₹20,000. In India? You pay ₹30,000 in taxes-30% of the ₹100,000 gain-while the ₹80,000 loss vanishes. No offset. No carry-forward. No mercy. This isn’t a hypothetical. It’s the reality for every crypto trader in India under the no loss offset rule.

What the No Loss Offset Rule Actually Means

Since April 2022, India has treated all Virtual Digital Assets (VDAs)-Bitcoin, Ethereum, NFTs, altcoins-as a separate tax category with one brutal rule: you can’t use crypto losses to reduce your crypto gains. This is written into Section 115BBH(2)(b) of the Income Tax Act. Even if you lose money overall, you’re taxed on every single profitable trade. If you sold ETH for a profit, you pay 30% on that profit-even if you lost more on BTC the week before.

Unlike stocks or mutual funds, where losses can cancel out gains within the same asset class, crypto losses in India are treated like they never happened. They don’t reduce your tax bill. They don’t roll over to next year. They can’t touch your salary or business income. The government sees each crypto trade as an isolated event, not part of a portfolio.

How the 30% Tax Rate Makes It Worse

The 30% tax rate on crypto gains is already high-higher than most capital gains taxes in the U.S. or Europe. But what makes it brutal is that it’s flat. No brackets. No discounts for holding longer. A day-trader and a long-term holder pay the same. And unlike traditional investments, there’s no indexation benefit. You can’t adjust your purchase price for inflation.

Add to that the 1% Tax Deducted at Source (TDS) on every crypto transfer over ₹10,000. That’s automatic. Even if you’re breaking even. Even if you’re losing money. The exchange takes 1% off the top before you even see your funds. So if you trade ₹50,000 worth of SOL for ETH, ₹500 disappears before you even get your new tokens. And yes, that applies to swaps too-BTC to LTC, ETH to USDT. Every single transaction triggers it.

What You Can’t Deduct (And Why It Matters)

Here’s where it gets even trickier. Your only allowable deduction is the cost of buying the crypto. That’s it. Gas fees? Not deductible. Exchange fees? Not deductible. Wallet costs? Nope. Even if you paid ₹5,000 in network fees across 20 trades, that’s gone. The tax department doesn’t care.

Compare that to running a small business. If you spend ₹20,000 on tools, software, and internet, you can deduct it. But if you’re a crypto trader, those same expenses? Irrelevant. Your tax bill is based only on gross gains minus purchase price. No overhead. No operating costs. Just pure profit, no matter how much you spent to get there.

Real-Life Impact: The Math That Breaks Traders

Let’s say you made five trades in a year:

• Trade 1: Bought BTC for ₹50,000. Sold for ₹70,000 → Profit: ₹20,000
• Trade 2: Bought ETH for ₹60,000. Sold for ₹40,000 → Loss: ₹20,000
• Trade 3: Bought SOL for ₹30,000. Sold for ₹50,000 → Profit: ₹20,000
• Trade 4: Bought ADA for ₹25,000. Sold for ₹15,000 → Loss: ₹10,000
• Trade 5: Bought DOT for ₹40,000. Sold for ₹45,000 → Profit: ₹5,000

Your total gains: ₹45,000. Your total losses: ₹30,000. Net profit: ₹15,000.

But under India’s rules, you pay 30% tax on ₹45,000 → ₹13,500. The ₹30,000 loss? Doesn’t matter. You’re out ₹13,500 in taxes on a net profit of ₹15,000. That’s 90% of your actual gain gone to taxes. And don’t forget the 1% TDS on every trade-another ₹1,500 or so taken off automatically. You didn’t even get to keep the full ₹45,000 before taxes.

Staking, Airdrops, and Forks: More Tax Traps

It’s not just trading. If you earn crypto through staking, airdrops, or hard forks, the moment you receive it, it’s taxed as income. Say you get 0.5 ETH from staking. If it’s worth ₹150,000 when it hits your wallet, you owe 30% on that-₹45,000-right then. Later, if you sell that ETH for ₹120,000, you owe another 30% on the ₹30,000 loss? No. You already paid tax on the ₹150,000. Now you’re taxed again on the sale, even if you lost money. Double taxation. No offset.

Why This Rule Exists (And Why It Won’t Change Soon)

The government’s stance is simple: crypto is speculative. It’s risky. It’s not an investment like stocks. So don’t expect the same rules. The no loss offset rule is meant to discourage frequent trading and prevent people from using crypto to hide losses or evade taxes.

But the result? It’s punishing responsible traders. People who track every transaction, keep records, and pay their taxes are the ones getting hit hardest. Meanwhile, those who hide their crypto or use offshore exchanges avoid the system entirely.

Budget 2025 made it worse. The government now allows taxing undisclosed crypto holdings at 60%-retroactively from February 1, 2025. That’s not a tax reform. That’s a warning: comply or face severe penalties.

What Traders Are Doing About It

Many Indian traders are adapting. Some are shifting to crypto futures trading. Why? Because futures are classified as derivatives, not VDAs. So they fall outside the 30% tax and TDS rules. But this comes with its own risks-higher leverage, higher volatility, and no consumer protection.

Others are moving to international exchanges. But here’s the catch: if you send more than ₹7 lakh abroad in a year under the Liberalised Remittance Scheme, India adds a 20% Tax Collected at Source (TCS). So you’re paying TDS on trades, TCS on transfers, and still owe 30% on gains. You’re not escaping-you’re just layering more taxes.

Some traders are quitting. Others are only holding long-term, avoiding sales entirely. A few are using crypto for payments to avoid triggering taxable events. But every workaround has a cost.

The Bigger Picture: India’s Isolation in Crypto Taxation

Most countries treat crypto like property. The U.S. lets you offset crypto losses against crypto gains. Germany gives you tax-free gains after one year. Portugal doesn’t tax personal crypto sales. Even Singapore has no capital gains tax on crypto.

India is one of the few countries that treats crypto as a separate, isolated, and hostile asset class. The no loss offset rule isn’t just unfair-it’s economically irrational. It discourages participation, drives activity underground, and makes compliance more expensive than the tax itself.

What You Need to Do Now

If you trade crypto in India, here’s what you must do:

1. Track every single transaction-buy, sell, swap, stake, airdrop.
2. Record the exact INR value at the time of each transaction.
3. Keep proof of purchase price and fees.
4. File ITR-2 or ITR-3. ITR-1 won’t work.
5. Don’t ignore TDS. It’s already being deducted. Make sure it’s reflected in your Form 26AS.
6. Use crypto tax software. Manual tracking is too error-prone.

There’s no legal way to dodge the no loss offset rule. But you can minimize damage by staying accurate, staying compliant, and understanding exactly what you owe. The taxman isn’t going away. And neither is this rule.