India’s no loss offset rule has turned crypto trading into a tax maze that many traders didn’t expect. If you’ve ever wondered why a profitable trade can still leave you with a net loss after taxes, the answer lies in a single provision of the Income Tax Act - Section 115BBH(2)(b). Below we break down what the rule actually does, how it reshapes your tax bill, and what practical steps you can take to stay compliant without emptying your wallet.

What the rule really says

At its core, the rule is simple but severe. Under Section 115BBH(2)(b) the law bars any loss incurred on Virtual Digital Assets (VDAs) from being set off against gains on other VDAs. In plain English: if you make ₹100,000 on Bitcoin and lose ₹80,000 on Ethereum in the same financial year, you still pay tax on the full ₹100,000 gain. The ₹80,000 loss never touches the tax calculation.

Key ingredients of India’s crypto tax framework

• 30% flat tax applies to all crypto gains, regardless of income slab or holding period.
• 1% Tax Deducted at Source (TDS) is levied on the gross value of each crypto transfer above ₹10,000 per year. Exchanges automatically deduct it, creating an immediate cash‑outflow.
• Schedule VDA is the mandatory reporting schedule that must be attached to ITR‑2 or ITR‑3 forms. Simpler ITR‑1 is off‑limits for anyone dealing in VDAs.
• Section 158B introduces a punitive 60% tax on undisclosed crypto holdings, applied retrospectively from 1Feb2025.

How the no‑loss offset rule changes your tax bill

Let’s run a quick example that mirrors the typical day‑to‑day experience of an active trader:

1. Buy BTC for ₹200,000 and sell it later for ₹300,000 → Gain = ₹100,000.
2. Buy ETH for ₹150,000 and sell it for ₹70,000 → Loss = ₹80,000.
3. Apply the 30% flat tax on the ₹100,000 gain → Tax = ₹30,000.
4. No offset for the ₹80,000 loss, so the net cash outflow is the tax plus any 1% TDS on each transaction.

Even though the overall profit before tax is only ₹20,000, the trader ends up paying ₹30,000 in tax - a net loss of ₹10,000. This asymmetry is the hallmark of the rule.

Why traditional loss‑offset mechanisms don’t work here

In equity markets, a loss in one stock can be set off against a gain in another, and any remaining loss can be carried forward for up to eight years. For businesses, non‑speculative losses can be offset against most other income streams. The crypto regime strips away all of those safety nets. Losses are dead‑ends; they cannot be carried forward, cannot reduce salary income, and cannot be used against future crypto gains. The result is a tax environment that looks like a one‑way street: you pay on the upswing, but the downswing gives you no relief.

Compliance checklist - what you must do today

Skipping any of these steps can trigger penalties, interest, and in severe cases, prosecution for willful evasion.

Strategic ways to limit tax drag (without breaking the law)

• Focus on low‑turnover trades. The 1% TDS hurts high‑frequency activity more than occasional spot trades.
• Use crypto futures. Futures are classified as derivatives, not VDAs, so they escape the 30% flat tax and the TDS. However, P&L on futures is still taxable under business income rules.
• Consolidate gains. If you have multiple small gains, consider closing the books in a year where you have other taxable income, reducing the marginal impact of the 30% rate.
• Leverage tax‑dedicated services. Specialized firms can help generate accurate Schedule VDA entries and ensure no missed TDS deductions.
• Stay within the Liberalised Remittance Scheme (LRS) cap. Remitting more than ₹7lakh a year subjects you to a 20% Tax Collected at Source (TCS), adding another layer of cost.

None of these tactics remove the no‑loss offset rule, but they can keep cash flow tighter and prevent surprise tax bills.

Impact on the Indian crypto market

Data from major Indian exchanges show a steady dip in monthly trade volume since the rule’s rollout in 2022. Traders report moving to offshore platforms or shifting to derivative products. While offshore activity can boost personal returns, it also raises the risk of non‑compliance with the 60% undisclosed‑holding penalty. Moreover, the heavy tax burden discourages new entrants, slowing downstream innovation in DeFi, NFTs, and blockchain‑based startups.

What the future might hold

Budget 2025 kept the rule intact and added stricter penalties for non‑disclosure. Industry bodies are lobbying for a loss‑offset provision, arguing that the current model stifles investment and pushes activity underground. Until a legislative amendment arrives, the rule looks permanent. Traders should therefore treat it as a fixed cost of doing business in India and plan their strategies accordingly.

Next steps for traders

1. Pull your transaction history from every exchange you use and load it into a spreadsheet or dedicated crypto tax tool.
2. Calculate total gains per VDA, apply the 30% flat rate, and add the 1% TDS already deducted.
3. File Schedule VDA with your ITR‑2/ITR‑3 before the deadline.
4. Consider shifting a portion of your activity to futures if you need to trade frequently.
5. Keep an eye on any legislative updates-if the government ever introduces a loss‑offset provision, you’ll want to be ready to adjust.

Understanding the no‑loss offset rule isn’t just about avoiding penalties; it’s about reshaping your trading game plan to survive in a high‑tax environment. Treat the rule as a fixed cost, plan around it, and you’ll keep more of what you earn.