No Loss Offset Rule in India: How It Hurts Crypto Traders

Imagine you make ₹100,000 trading Bitcoin this year, but lose ₹80,000 on Ethereum. In most countries, you’d pay tax only on your net gain of ₹20,000. In India? You pay tax on the full ₹100,000. That’s the reality of the no loss offset rule - a policy that’s reshaping how crypto traders think, trade, and survive in India.

What the Rule Actually Means

Since April 2022, India’s Income Tax Act has banned crypto traders from using losses to reduce their tax bill. Under Section 115BBH(2)(b), every time you sell, swap, or spend crypto, the profit is taxed at 30% - no exceptions. Losses? They vanish. They don’t cancel out gains. They don’t carry forward to next year. They don’t even reduce your salary or business income. It’s not just unfair - it’s mathematically brutal.

Take a real example: A trader buys 0.5 BTC for ₹25 lakh, sells it later for ₹30 lakh (₹5 lakh profit). In the same year, they buy 2 ETH for ₹12 lakh and sell for ₹8 lakh (₹4 lakh loss). Under normal tax rules, they’d pay tax on ₹1 lakh net gain. In India? They pay 30% tax on ₹5 lakh - ₹1.5 lakh - while the ₹4 lakh loss is ignored. They lost money overall, but still owe taxes on the one profitable trade.

How the Tax System Is Built to Punish Losses

The Indian crypto tax system isn’t just missing relief - it’s stacked against traders. Here’s how:

• 30% flat tax on all crypto gains, regardless of income level or how long you held the asset.
• 1% TDS on every transfer over ₹10,000. Even if you’re breaking even, you lose 1% of your trade value upfront. Exchanges automatically deduct it. No refund if you lost money.
• No deductions allowed for gas fees, exchange fees, or wallet costs. Only the original purchase price counts.
• No carry-forward. Unlike stocks, where losses can offset gains for up to eight years, crypto losses disappear forever.
• Staking, airdrops, and hard forks are taxed as income the moment you receive them - even if the token later crashes.

Compare this to equity trading. If you lose money on stocks, you can offset it against stock gains. If you still have losses left, you carry them forward. Crypto? No such luck. The system treats crypto like gambling - where every win is taxed, and every loss is ignored.

Why This Isn’t Just About Money - It’s About Behavior

This rule doesn’t just affect tax bills. It changes how people trade. Traders are now avoiding small, frequent trades because the 1% TDS eats into every transaction. Many are shifting to crypto futures - which aren’t classified as Virtual Digital Assets (VDAs) - to dodge TDS entirely. But that’s risky too. Futures are highly leveraged. One wrong move, and you lose everything.

Others are turning to offshore exchanges. But here’s the catch: if you send money abroad to trade crypto, India’s Liberalised Remittance Scheme (LRS) kicks in. Any transfer over ₹7 lakh in a year triggers a 20% Tax Collected at Source (TCS). So you’re stuck between paying 30% tax at home or 20% tax abroad - plus the risk of being flagged for non-compliance.

Platforms like CoinSwitch report traders are cutting back. Some are quitting crypto entirely. Others are hiding their trades - which is dangerous. The 2025 budget introduced a new penalty: if you didn’t report crypto holdings since February 1, 2025, the government can tax you at 60% - retroactively. That’s not a tax. That’s a fine for being honest.

Reporting Is a Nightmare

Filing crypto taxes in India isn’t like filing regular income. You can’t use ITR-1. You need ITR-2 or ITR-3, and you must fill out Schedule VDA. Every single transaction - buys, sells, swaps, staking rewards - must be logged with dates, amounts, and acquisition costs. Miss one, and you risk scrutiny.

Many traders don’t even know how to track this. A simple swap from Bitcoin to Ethereum counts as two transactions: sell BTC, buy ETH. Each has its own cost basis. If you used a decentralized exchange, you might not have a receipt. If you mined crypto? You owe tax on the value when it hit your wallet - even if you never sold it.

Tax firms say demand for crypto tax help has exploded. But experts warn: even the best accountant can’t fix the system. The rules are designed to make compliance painful. And that’s the point.

How India Compares to the Rest of the World

Most countries treat crypto like property - not a cash cow.

• United States: Crypto losses offset crypto gains. Unused losses can offset up to $3,000 of ordinary income yearly, with the rest carried forward.
• Germany: No tax on crypto if held over one year. Losses can be deducted against gains.
• Portugal: Personal crypto trading is tax-free.
• Japan: Losses offset gains. Gains taxed at progressive rates (15-55%), not flat 30%.

India is one of the few countries with a flat 30% rate, no loss offset, and mandatory TDS on every transfer. It’s not just strict - it’s outlier strict. Experts call it a “regulatory deterrent.” The government isn’t trying to encourage crypto. It’s trying to discourage it.

What Traders Are Doing Now

Most aren’t fighting the system. They’re adapting.

• Reducing activity: Many now trade only once or twice a year to minimize TDS hits.
• Using futures: Derivatives aren’t classified as VDAs - so no TDS. But leverage means higher risk.
• Going offshore: Using Binance, Kraken, or OKX - but risking TCS and legal exposure.
• Stashing cash: Some are moving funds into gold, real estate, or fixed deposits to avoid the crypto tax trap entirely.

There’s no winning move. Every path has a cost.

What’s Next? No Signs of Change

As of 2026, there’s no indication the government plans to soften this rule. Budget 2025 didn’t bring relief - it brought harsher penalties. The 60% retrospective tax on unreported holdings proves the goal isn’t fairness. It’s control.

Industry groups keep asking for reform. But the message from the Finance Ministry is clear: crypto is a risk. And if you trade it, you accept the cost.

For now, traders are left with one hard truth: in India, crypto isn’t an investment. It’s a tax liability waiting to happen.