The 1% TDS Rule Can Affect XRP Trading Liquidity Even Before Income Tax Is Due
The tax rules will not affect the trading capital of Indian crypto investors until they calculate their annual income tax bill. The 1% withholding tax on virtual digital asset transfers can reduce the funds immediately available for subsequent trades, a crucial factor for those who frequently buy and sell XRP.
On October 9, 2026, 1 xrp to inr is valued at about ₹135.13, down from ₹144.26 on October 6. When XRP can shift several percentage points in days, even a small cut per transaction can be discernible for investors who are constantly moving money around the market.
How Does the 1% TDS Rule Work?
Under the definition of the term ‘consideration' in Section 194S, tax is deducted at source at the rate of 1% on consideration paid for the transfer of a virtual digital asset.
The key word is “consideration.” TDS is usually computed on the transaction amount, not on the investor's actual profit.
An investor who sells ₹100,000 worth of XRP may thus have ₹1,000 deducted under the TDS mechanism even if s/he had originally paid ₹110,000 for the XRP and the transaction was a loss.
This is a different principle from the ultimate calculation of VDA income for tax purposes.
For most investors, the limit is ₹10,000 for the financial year. Specified persons, such as certain individuals and Hindu Undivided Families (HUFs) that meet the conditions set out in the rules, are allowed a higher threshold of ₹50,000.
Why Can TDS Reduce Trading Liquidity?
This is more apparent when the same capital is traded many times.
Suppose an investor held ₹500000 worth of XRP and sold it all. A 1% deduction means a loss of ₹5,000, which is not immediately available for reinvestment.
If the remaining balance is then used to purchase XRP again and subsequently sold, one additional deduction may be applied to the transfer.
The tax deducted is by no means the final tax liability, as the investor can credit the TDS when filing the return. But there may be a significant difference between when it is deducted and when it is reconciled through the tax system.
For instance, that time differential can impact liquidity for an active trader.
Why Does XRP Volatility Make the Effect More Noticeable?
Traders can see XRP change rapidly, which can lead to multiple trading entries or exits in a short span of time.
CoinGecko data showed XRP at approximately ₹146.44 on October 4, 2026, before falling to ₹144.26 on October 6, ₹137.47 on October 7, and ₹133.52 on October 8. That was back on October 9, when it was around ₹135.13.
That's about a 9% drop from the highest point on Oct. 4 to Oct. 8. If the investor is holding for the long term, the 1% cut may only be seen at the time of eventual redemption. TDS can be triggered multiple times when one person tries to trade a number of such swings while transferring the assets.
Additionally, the higher the capital turnover, the greater the significance of cash-flow management.
Is TDS the Same as the 30% Crypto Tax?
No. The two components of the VDA tax regime in India operate differently.
The transfer of virtual digital assets is generally taxed at 30% of the income, plus applicable surcharges and cess under Section 115BBH of the Income-tax Act. This tax is applied after accounting for the allowed acquisition-cost deduction.
Section 194S, on the other hand, relates to tax deducted at the time of the transaction.
An XRP investor could therefore receive a 1 percent discount on a disposal, and have to determine the actual amount of taxable gain separately when filing an income tax return.
Mixing the two can lead to a worse-than-warranted effective tax position, while failing to recognize TDS can lead to liquidity issues throughout the year.
What Happens When a Trader Makes a Loss?
This is where the distinction between transaction value and profits takes on a greater significance.
If XRP is bought at ₹150 per share and sold at ₹135 per share. The investor has lost ₹15 per token before considering any other costs.
The mechanism can still be considered for TDS, as it is based on the consideration received for the transfer, not on whether there is a profit from this particular transaction.
Moreover, the VDA rules of India also limit the usage of crypto losses. Losses from VDA transfers tend not to be freely offset against income or freely carried forward, unlike many more traditional investment losses.
That means active traders will have to keep track of realized results and the quantum of liquidity deducted as TDS.
Does Market Scale Make This More Important?
Even at the transaction level, frictions can be important across the market, as crypto trading remains large.
Binance Insights reported in its October 6, 2026 market report that the total crypto market capitalization rose by around 11% in September to $2.99 trillion. The recovery coincided with a revival of institutional inflows and increased trading volumes for key digital assets.
XRP is still one of the larger assets in that market, which means Indian traders are involved in a market that can move around the clock.
A tax mechanism applied to every asset transfer is thus very different from an annual charge computed at the end of the market close for a tax year.
Moreover, a portion of the money invested by an Indian trader may be locked up due to tax collection in India, but the underlying investment may remain liquid globally.
Why Does Recordkeeping Matter for TDS?
When you have accurate records, you will have a better idea of what is taxed and what is not, and what was deducted from your income as tax.
Different purchase values, disposal values and amounts deducted at source should be separable on a per-transaction basis. This is particularly relevant if XRP trades on multiple platforms or at varying price points.
A trader who only checks the balance of his wallet will not be able to see the capital withdrawn in the year due to TDS.
That information is important when reconciling transactions with tax records and determining the ultimate income tax position.
Can 1% Become Significant for High-Frequency XRP Traders?
While it may seem like a small 1%, it adds up when turnover happens multiple times.
Theoretically, if the same ₹100,000 is traded across 10 full-value sales, the total transaction amount would be ₹1 million. If the investor had spent 1% on every qualifying disposal, then he would have deducted ₹10,000 from these disposals, but he never had ₹1 million of original capital.
This does not imply that the trader will have to pay an additional ₹10,000 in income tax. It represents ₹10,000 in liquidity that has been frozen and will need to be sorted out later. That difference is important to investors who trade often.
Is TDS Becoming Part of the XRP Trading Decision?
It must become increasingly so for Indian traders. The rapid movement of XRP can create numerous buy and sell opportunities, and all disposals are subject to the Indian tax regime.
Also, the 1% TDS rule is not used to determine profitability. It does, however, affect how much capital (if any) will be available after a transaction.
That implies that investors observing XRP at ₹135 on October 9 should not only consider where the price might go next.
Ultimately, liquidity can be affected by tax considerations long before the income tax bill is determined, especially for active traders.
Author Bio
Liam Frederick Thomas is a journalist and editor with seven years of experience covering financial markets, cryptocurrency and digital assets. His work includes research-led content for finance and legal audiences, with a focus on Bitcoin, institutional adoption, macroeconomic trends and the changing relationship between crypto and traditional finance.
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