As the July 31, 2026 deadline for income tax return (ITR) filing approaches, a class of investors receiving particular attention from the Income Tax Department is cryptocurrency holders. And with more than 44,000 notices being issued for undisclosed virtual digital assets (VDAs) worth ₹888.82 crore, the message is clear—the taxman is watching.
The 30% Flat Tax Rule
Under Section 115BBH of the Income Tax Act, any profit from the transfer of VDAs (such as Bitcoin, Ethereum, NFTs and other cryptocurrencies) is taxed at a flat 30% regardless of your income slab or how long you held the asset. Add a 4% health and education cess and the effective minimum rate is 31.2%.
What Makes Crypto Different from Stocks?
Unlike equities, crypto taxation leaves almost no room for optimization:
No deductions allowed: Only the cost of acquisition can be deducted. Exchange fees, brokerage, gas fees, and platform charges are not deductible.
No loss set-off: If you gain ₹5 lakh on Bitcoin but lose ₹8 lakh on Ethereum, you still pay tax on the full ₹5 lakh profit. Crypto losses cannot be set off against any other income—not even gains from other crypto assets.
No carry-forward: Unlike stock market losses, crypto losses cannot be carried to future years.
The 1% TDS Rule
A 1% Tax Deducted at Source (TDS) under Section 194S applies to crypto transfers over ₹10,000 per financial year (₹50,000 for particular individuals). In India, this is automatically deducted. For foreign exchanges such as Binance or Coinbase, however, the investor is duty-bound to self-report and deposit TDS. And TDS is not an extra tax, as it can be claimed as credit against your final 30% liability.
How to Report in ITR
Crypto gains must be reported transaction-by-transaction in Schedule VDA of ITR-2 (for investors) or ITR-3 (for traders). Aggregated entries are rejected. You cannot use ITR-1 (Sahaj) or ITR-4 (Sugam).
Penalties for Non-Compliance
Failure to report crypto gains can lead to penalties of 50% to 200% of tax due. For undisclosed foreign exchange holdings, penalties reach ₹10 lakh per year of non-disclosure, with up to 7 years in prison.
With the Income Tax Department now cross-referencing exchange data and CRS feeds, clean disclosure is the only safe approach. Download your transaction history, calculate gains trade by trade, file Schedule VDA accurately, and meet the July 31 deadline.
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