Under Section 194S of the Income Tax Act, a 1% Tax Deducted at Source (TDS) is levied on the transfer of Virtual Digital Assets (VDAs). Since the deduction is made on the transaction value and not the actual profit, some investors may end up paying more TDS than their final tax liability. In such cases, the excess amount can be claimed as a refund while filing the ITR.
When can a crypto investor claim a TDS refund?
The 1% TDS applies even if a crypto transaction results in a loss, as the deductor does not have visibility into the investor’s acquisition cost or overall tax liability.
Siva Venkataraman, Chief Financial Officer at CoinSwitch, said investors whose final tax liability is lower than the TDS deducted under Section 194S can claim the excess amount as a refund while filing the appropriate income tax return.
Pranav Pagaria, Head of Finance & Strategy at CoinDCX, said many investors incorrectly assume the 1% deduction is an additional tax. In reality, it functions as an advance tax that is adjusted against the final tax payable, with any excess becoming refundable.
What should investors verify before filing?
Experts say investors should ensure the sale value reported under Schedule VDA matches the transaction value on which TDS was deducted. They should also report all taxable crypto transactions and verify that the TDS credit claimed matches the entries reflected in Form 26AS, including the deductor’s details and the amount deducted.
A pre-validated bank account on the income tax e-filing portal is also necessary, as refunds are credited only to validated accounts.
How should investors reconcile transactions across exchanges?
For investors trading across multiple exchanges or wallets, tax reporting can become more complex.
Venkataraman said Form 26AS and the Annual Information Statement (AIS) should be reconciled with trade reports and TDS certificates issued by every exchange used during the financial year. If any discrepancy is noticed, investors should first approach the concerned exchange for correction before claiming the TDS credit in their return.
Pagaria also advised taxpayers to compare exchange-generated tax reports with Form 26AS and AIS before filing, so that all TDS deductions are correctly reflected in the return.
What are the common mistakes that delay refunds?
According to Venkataraman, refund delays are usually caused by reporting errors rather than the refund process itself. Common issues include mismatches between transaction values reported in the ITR and those on which TDS was deducted, incorrect TDS claims, omission of taxable crypto transactions, or inaccurate bank account details.
Such discrepancies can delay return processing and, in some cases, invite queries from the tax department.
With the filing deadline nearing, experts say reviewing transaction records and tax statements before submitting the return can help investors avoid errors and claim any eligible refund without unnecessary delays.
