The Harshest Rule in Indian Tax
In traditional investing, the government shares your pain. If you make a profit on Reliance shares and a loss on Tata shares, you can set off the loss against the profit and only pay tax on the net gain.
For cryptocurrency, the government takes a different approach: Heads I win, tails you lose.
Quick stat: Under Section 115BBH(2), a loss from one VDA cannot be set off against gains from another VDA or any other income, and crypto losses cannot be carried forward at all (Source: Income Tax Act, Section 115BBH).
The "No Set-Off" Rule
Under Section 115BBH of the Income Tax Act, the rules for Virtual Digital Assets (VDAs) are brutally clear:
- No Inter-Crypto Set-Off: You cannot set off a loss from one crypto token against a profit from another.
- - If you make ₹1,00,000 profit on Bitcoin and lose ₹80,000 on Dogecoin, your taxable income is ₹1,00,000. You will pay ₹30,000 in tax (30%), even though your actual net profit is only ₹20,000.
- No Cross-Income Set-Off: You cannot set off crypto losses against your salary, business income, or stock market capital gains.
- No Carry Forward: If you end the year with a massive net loss in crypto, you cannot carry that loss forward to reduce your taxes in future years. The loss simply vanishes for tax purposes.
Why did the government do this?
The government introduced these punitive rules to actively discourage retail speculation in highly volatile crypto assets. By refusing to subsidize losses, they ensure that only those willing to bear the full brunt of the downside participate in the market.
How to Report This in ITR
When you fill out Schedule VDA in ITR-2 or ITR-3, you must list your trades. The utility on incometax.gov.in is programmed with these rules. It will automatically sum up the "Income" column (the profitable trades) and apply the 30% tax, while completely ignoring the rows where the outcome is a loss.
Don't try to net it out yourself A common mistake is manually calculating your net profit across all trades and entering a single row in Schedule VDA. If the tax department audits you and finds you netted losses against gains, you will face severe penalties for tax evasion. Always report the gross profits accurately.
How LastMinute ITR helps
We separate your profitable and loss-making VDA trades so the gross profit is taxed correctly, and we reconcile the totals against your AIS before you file on incometax.gov.in.
Start with LastMinute ITR · import your exchange report · fix an AIS mismatch.
What you should do
- Accept that each profitable trade is taxed at 30% on its own, with no offset.
- Do not bank on carrying crypto losses forward; they expire each year.
- Report gross profits trade-by-trade in Schedule VDA.
Common mistake
Offsetting a Dogecoin loss against a Bitcoin gain. The law forbids inter-crypto set-off. You pay 30% on the full winning trade even if your overall portfolio is down.