A New Act, The Same Obligations
The Income Tax Act, 2025 came into force on April 1, 2026, replacing the 1961 Act. For investors filing for FY 2025-26, the old Act’s provisions still govern your obligations. The core framework remains intact: a flat 30% tax on profits from Virtual Digital Assets, a 1% TDS on transfers exceeding Rs 10,000, no deductions except the cost of acquisition, and no ability to offset losses from one crypto asset against gains from another.
The new Act renumbers the governing sections and explicitly adds “crypto-asset” to the VDA definition, but the substance of the obligations has not changed. If you have been filing correctly under the old Act, the transition requires no dramatic adjustment. What has changed is the penalty framework, and that deserves your attention.
The Right Form, Filled Correctly
For FY 2025-26, investors file under ITR-2 if reporting crypto as capital gains or ITR-3 if crypto trading constitutes business income. Both forms contain a dedicated Schedule VDA section where all crypto transactions must be reported.This is the step where most errors happen.Schedule VDA requires transaction-by-transaction entry, not just a summary of your net gains. Every trade, every swap, every disposal needs to be listed individually. Investors who have traded across multiple platforms, used DeFi protocols, or moved assets between wallets will find this the most demanding part of the process. The data needs to be accurate, complete, and consistent with what your exchange has already reported.
Failing to report even a single crypto-to-crypto swap can trigger penalties for non-disclosure. A swap between two tokens is a taxable event in India, and many investors still treat it as a portfolio reshuffling rather than a reportable transaction. It is not.
Why Accuracy Matters More Than Ever This Year
Budget 2026 introduced a significant structural change: crypto exchanges, custodians, and wallet providers are now required to furnish user-level transaction statements directly to the Income Tax Department. This data is then cross-referenced against your ITR automatically. If your declared income in Schedule VDA does not match what your exchange has reported, the system flags it.
The Income Tax Department has already issued over 44,000 notices and detected more than Rs 888 crore in undisclosed VDA income. The department is actively using Annual Information Statements, exchange TDS filings, and blockchain analytics. The gap between what investors report and what the system can see is closing fast.For investors who have used foreign exchanges, the picture becomes more complex from next year. India’s CBDT has confirmed alignment with the OECD’s Crypto-Asset Reporting Framework, with domestic enforcement targeted for April 1, 2027. This means international crypto holdings will be automatically visible to Indian tax authorities through cross-border data sharing. If you hold assets on overseas platforms, this year is the time to get your records in order.
The Most Common Mistakes And How to Avoid Them
After years of working in compliance, the errors we come across are often not intentional. They are the result of disorganised record-keeping and a poor understanding of what counts as a taxable event.The first mistake is using the wrong ITR form. Filing under ITR-1 when you have crypto income results in a defective return that the department will reject.
The second is incomplete Schedule VDA reporting. Staking rewards, airdrops, and DeFi income must be reported separately under income from other sources, not lumped together with trading gains. Each category is taxed differently and must be disclosed on its own.
The third is TDS reconciliation. Every VDA transfer above the threshold leaves a 1% TDS footprint in your Form 26AS. Investors who do not verify this against their own transaction records risk either missing a refund they are entitled to or creating a mismatch that triggers scrutiny.
The fix for all three is the same: good records maintained throughout the year, not reconstructed in a hurry at filing time.
Compliance Is Not the Enemy of Participation
Compliance is often described as a burden that slows down innovation. However, a market where investors file accurately, platforms report transparently, and regulators have visibility is one that earns the trust it needs to grow.
India has one of the most active crypto investor bases in the world. Protecting that participation means filing correctly, staying current with regulatory changes, and treating tax obligations with the same seriousness as investment decisions.
The rules are clear. The tools to comply exist. The only variable is whether investors choose to use them before the deadline or explain themselves after it.
(The author Rakhesh Raghunath is Head of Compliance, Mudrex)
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
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