Crypto Tax Refund on Excess TDS: What Investors Should Check Before ITR Filing?

With the July 31 income tax return (ITR) filing deadline approaching, crypto investors are being advised to review their transaction and tax records carefully, according to a CNBC TV18 report. Under the Income Tax Act, a 1% Tax Deducted at Source (TDS) applies to the transfer of Virtual Digital Assets (VDAs), including cryptocurrencies.

As this deduction is based on the transaction value rather than the actual profit earned, some investors may have paid more TDS than their final tax liability. In such cases, the excess amount may be claimed as a refund while filing the ITR.

How Does the1% TDS on Crypto Transactions Work?

Section 194S of the Income Tax Act requires a 1% TDS deduction on the transfer of VDAs. The tax is deducted on the transaction value at the time of transfer rather than on the investor’s actual gain or loss from the trade.

As a result, the amount deducted may not always reflect the taxpayer’s final income tax liability. This mechanism ensures tax reporting of crypto transactions but can create situations where investors are eligible for refunds.

Why Some Crypto Investors May Be Eligible for Refunds?

The 1% TDS applies regardless of whether a transaction generates a profit or a loss. This is because the deductor does not have access to information such as the investor’s acquisition cost, holding history or overall tax position.

Consequently, investors with lower tax liabilities may find that the total TDS deducted during the year exceeds the tax ultimately payable. Any excess amount can generally be claimed as a refund while filing the annual income tax return.

What Information Should Be Reported in Schedule VDA?

Tax professionals advise investors to ensure that all taxable crypto transactions are reported accurately in Schedule VDA. The sale value disclosed in the return should match the transaction value on which TDS was deducted to minimise the possibility of discrepancies.

Investors should also verify that the TDS credit claimed in the return corresponds with the entries available in Form 26AS. Details such as the deductor’s name, transaction records and deducted amount should be checked before submission.

Key Checks Before Filing the ITR

Investors should review their crypto transaction history well before filing their returns. Those trading across multiple exchanges or digital wallets may face additional complexity because records are often spread across different platforms.

Tax experts recommend reconciling transaction statements, TDS records and Form 26AS entries to identify any mismatches. A pre-validated bank account on the income tax e-filing portal is also necessary because tax refunds are credited only to validated accounts.

Read More: Income Tax Department Enables ITR-2 Filing for AY 2026-27 On E-Filing Portal.

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Conclusion

The approaching July 31 filing deadline makes it important for crypto investors to review their tax documentation thoroughly. Since the 1% TDS on VDAs is deducted from transaction value rather than actual profit, some taxpayers may be entitled to refunds of excess tax paid.

Accurate reporting of transactions, proper verification of TDS credits and reconciliation with Form 26AS can help reduce filing errors. Reviewing these details in advance may support smoother return processing and timely receipt of any eligible refund.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions.

Investments in the securities market are subject to market risks, read all the related documents carefully before investing.