As the income tax return (ITR) filing season gathers pace, cryptocurrency investors are being advised to carefully reconcile their transactions, disclose all gains accurately and avoid assuming that tax deducted at source (TDS) is their final tax liability. Tax experts say many notices issued by the Income Tax Department arise from mismatches between TDS records and income reported in tax returns rather than deliberate tax evasion.

Pranav Pagaria, SVP - Finance & Strategy at CoinDCX, said investors who receive a crypto-related tax notice should verify their records and respond promptly with complete documentation.

"In most cases, a tax notice is simply the department reconciling the TDS deducted under Section 194S with the income disclosed in an investor's return. This is why maintaining accurate records, including transaction history, TDS certificates, and gain or loss statements, is so important for every investor," he said.

Pagaria added that CoinDCX allows users to access their transaction history and TDS records, making it easier to respond accurately to any query from the tax department.

Don't mistake TDS for final tax

According to Pagaria, one of the biggest mistakes investors make while filing their ITR is assuming that the 1% TDS deducted under Section 194S covers the entire tax liability.

"The most common oversight is assuming that the 1% TDS already deducted under Section 194S covers the full tax liability, when in fact investors still need to compute and pay the actual 30% tax under Section 115BBH while filing their returns," he said.

MUST READ: ITR filing gets cheaper: PhonePe, JioFinance launch tax filing plans from ₹24

He also warned that failing to reconcile transactions spread across multiple exchanges or wallets can lead to mismatches with income reported in tax returns, increasing the chances of receiving a notice.

What crypto transactions are taxable?

Under Indian tax laws, a wide range of crypto transactions attract tax. These include buying goods or services using cryptocurrency, exchanging one cryptocurrency for another, trading crypto using Indian rupees, receiving crypto as payment for services, receiving digital assets as gifts, mining cryptocurrencies, earning salaries in crypto, staking rewards and receiving airdrops.

Since FY23, gains from Virtual Digital Assets (VDAs), including cryptocurrencies and NFTs, are taxed at a flat 30%, irrespective of the taxpayer's income slab. An additional 4% health and education cess is also applicable. No deduction is permitted except the cost of acquisition, and losses from crypto transactions cannot be set off against any other income or carried forward to future years.

MUST READ: Chennai taxpayer jailed for 1 year for not filing ITR: Why skipping your income tax return can lead to prosecution

Section 194S also mandates a 1% TDS on specified crypto transactions exceeding ₹10,000 in a financial year for most taxpayers and ₹50,000 for specified individuals and Hindu Undivided Families (HUFs). While the TDS can be claimed as credit while filing the ITR, investors must still calculate and pay any remaining tax due.

Reporting crypto in ITR

From FY 2025-26 onwards, taxpayers must disclose crypto gains separately under Schedule VDA in their income tax returns. Exchanges are also required to furnish transaction details to tax authorities, making accurate reporting even more important.

Experts note that gifts of cryptocurrencies are generally taxable in the hands of the recipient, while profits from crypto futures and options may be taxed depending on their classification under the Income Tax Act.

With scrutiny of virtual digital assets increasing, experts recommend maintaining consolidated records of all transactions across exchanges and wallets, preserving TDS certificates and gain/loss statements, and accurately reporting every taxable crypto transaction to minimise the risk of receiving a tax notice.

MUST READ: How the Income Tax Department's Assisted Filing feature lets taxpayers authorise CAs without sharing passwords

ABOUT THE AUTHOR

Published on: Jul 10, 2026 3:05 PM IST