With the rising popularity of cryptocurrencies, the Income Tax Department has become more vigilant in tracking income from Virtual Digital Assets (VDAs) like Bitcoin, Ethereum, NFTs, and other tokens. If you’re trading or investing in crypto, it’s crucial to report these crypto transactions correctly in your Income Tax Return (ITR) to avoid notices, penalties, or even prosecution.
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:
- Flat 30% tax on gains from transfer/sale of VDAs
- No deduction allowed for any expense except the cost of acquisition
- 1% TDS (Section 194S) applicable on transfers above ₹10,000 (or ₹50,000 in some cases)
- 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:
- Notice under Section 139(9) – For defective ITR if crypto income is omitted
- Scrutiny Notice under Section 143(2) – For under-reporting
- Notice under Section 148 – For reassessment due to escaped income
- Penalty & Interest – Up to 200% of the tax evaded, along with 1% interest per month
- 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.