Let’s break down the tax implications of VDAs, how to report them in your ITR, and what happens if you miss declaring them.

What Is a Virtual Digital Asset (VDA)?

According to the Income Tax Act, a Virtual Digital Asset includes:

• Cryptocurrencies (e.g., Bitcoin, Ethereum, Solana)
• NFTs (Non-Fungible Tokens)
• Any token that represents value stored digitally

This definition is broad and covers almost all types of crypto assets.

How Is Crypto Income Taxed in India?

From 1st April 2022 (FY 2022–23 onwards), the taxation rules for VDAs are:

1. Flat 30% tax on gains from transfer/sale of VDAs
2. No deduction allowed for any expense except the cost of acquisition
3. 1% TDS (Section 194S) applicable on transfers above ₹10,000 (or ₹50,000 in some cases)
4. Loss from VDAs cannot be set off against any income or carried forward

So even if you’ve made a loss in some trades, you can’t adjust it against profits from other income heads.

How to Report VDAs in ITR (AY 2025–26)?

If you had income or gains from crypto in the previous financial year, you must report it in your Income Tax Return:

1. Select the Correct ITR Form

• ITR-2 – If you’re a salaried individual with VDA income
• ITR-3 – If VDA trading is your primary business or you’re frequently trading
• ITR-1 / ITR-4 – Not allowed for VDA income

2. Fill the VDA Schedule (Newly Introduced)

Starting from AY 2023–24, the ITR forms have a dedicated section for VDAs, where you must provide:

• Date of acquisition and sale
• Cost of acquisition
• Sale consideration
• Gain/loss on transfer
• TDS already deducted

Each VDA transaction needs to be reported individually, so maintain a detailed transaction log.

What If You Don’t Report Crypto Income?

The Income Tax Department is tracking crypto activity using:

• TDS reports filed by exchanges
• Data sharing from exchanges/platforms
• Suspicious transaction monitoring

If you skip disclosing VDA income, you may receive:

1. Notice under Section 139(9) – For defective ITR if crypto income is omitted
2. Scrutiny Notice under Section 143(2) – For under-reporting
3. Notice under Section 148 – For reassessment due to escaped income
4. Penalty & Interest – Up to 200% of the tax evaded, along with 1% interest per month
5. Prosecution in extreme cases, under Section 276C

What If You’ve Already Missed Reporting?

If you forgot to include your crypto gains in past ITRs, you have two remedies:

• File a Revised Return – Before the due date (generally 31st Dec of the AY)
• Use Updated Return (u/s 139(8A)) – Within 2 years from the end of the relevant AY

Timely voluntary disclosure may help reduce penalties and prevent further legal action.

Best Practices for Crypto Traders/Investors

• Maintain an Excel sheet of all trades with date, quantity, price, exchange, and wallet ID
• Ensure you download Form 26AS and TDS certificates (if 1% TDS was deducted)
• Use crypto tax tools or consult a CA if you have multiple wallets/exchanges
• Reconcile your reported data with what exchanges may share with the government

Tax on crypto is not optional anymore. The government has put in place a framework that makes tracking and enforcement easier than ever. Whether you’re a casual investor or a daily trader, accurate and timely reporting of VDA transactions is essential.

By correctly filling the VDA schedule in your ITR, you not only stay compliant but also avoid the stress of future notices or scrutiny. Remember, compliance is always cheaper than penalty.

The post How to Report Crypto Transactions in Your Income Tax Return (AY 2025–26) appeared first on TAX VIC.

What Is Cryptocurrency? 

Cryptocurrencies are digital assets people use as investments and for online purchases. You exchange real currency, like dollars, to buy “coins” or “tokens” of a certain kind of cryptocurrency.

Cryptocurrencies are pieces of digital code that are traded as an asset. These digital coins are built on blockchain, a decentralized ledger technology that offers a permanent, immutable record of transactions divided among different nodes.

Use of crypto makes transaction superfast anywhere Globally. You can exchange your money for crypto and use it as real money where it is acceptable as payment.

The oldest and most popular cryptocurrency is bitcoin, which came  in 2009. Currently there are thousands of digital coins available to buy and sell, but only a handful for example  bitcoin and ethereum are traded on key exchanges.

How Does Cryptocurrency Work?

Cryptocurrency is exchanged from person to person on the web without a middleman, such as in normal form of money like a bank or Government. They’re decentralized, Government or bank does not have control over how they’re made, their value is, or way it is exchanged. Because of that, cryptocurrencies are attractive as it is futuristic, exciting

Most popular Types of Cryptocurrency

Bitcoin it was the first cryptocurrency

Ethereum: This one is the next most popular cryptocurrency after Bitcoin. Ethereum is a bit more complex because it allows its users to “mine” their coins.

Dogecoin 

Is Cryptocurrency a Good Investment?

Do not invest more unless you have money in excess, to try investing   in cryptocurrencies. To be on a safer zone if you are taking huge risk with your savings, wait for the market to stabilize and the government to come out with its proposed regulation to understand where the cryptocurrencies market in India is headed. There are pros and cons both, we are explaining in below points:

PROs

It could be the next big thing

Crypto is a global  digital currency, and it can be used for transactions across countries without having to pay high charges unlike in normal banking transactions, also at a speed of super computer like within a matter of seconds. This could  revolutionize the banking and financial services industries of the world.

Right now, cryptocurrency isn’t widely accepted around the world as regulations are not clear about same. But as more merchants start to accept it as a form of payment, it could potentially have an enormous impact on society.

It could help diversify your portfolio

If you have good savings and try to take some risk, you may invest a small portion of your portfolio in cryptocurrency. In fact, diversifying into crypto industry can give you the incentive to have a better understanding of crypto and the way it works. The better you understand crypto, the better decisions you’ll be able to make in coming time.

CONs

Crypto is extremely volatile

One tweet from Elon Musk is enough to scare all cryptocurrencies to fall and to rise. One of the biggest risks of investing in crypto is its extreme volatility. Bitcoin, for example, lost roughly 80% of its value at one point of time earlier.

If you’re the risk-averse investor, investing in crypto could be too much of stress for you. If you are not ready to deal with the short-term ups and downs do not go for it.

Very speculative

Cryptocurrencies are far riskier than most stocks because they’re a relatively new type of investment. Uncertainty of Government rules makes crypto a high-risk investment.

Other risks involved in owning crypto

Aside from the risks of crypto as an investment, there are also risks involved in owning and keeping cryptocurrency itself. Cryptocurrencies don’t trade on traditional stock market exchanges except for one or two crypto. Most crypto are bought and sold through crypto exchanges. There is a special digital wallet to hold your crypto currency. Digital wallets aren’t 100 percent safe so this is another risk.

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