The Income Tax Department of India has launched a major crackdown on individuals who failed to report their cryptocurrency income. Thousands have received notices, and this time, the department is armed with actual data and transaction records through its NUDGE framework (Non-Intrusive Usage of Data to Guide and Enable).
If you’ve traded, held, mined, or received crypto in any form, here’s how to stay compliant and avoid penalties.
Why Are Crypto Users Receiving Tax Notices?
In the past, the tax department sent bulk emails urging people to update their income tax returns (ITR). Now, thanks to advanced data analytics and blockchain tracing, the government is targeting those who have not reported crypto income—despite TDS being deducted under Section 194S of the Income Tax Act.
According to Ravi Sawana, Partner at Lakshmikumaran & Sridharan:
“Transactions in cryptocurrencies on which TDS has been deducted under Section 194S have not been declared in the ITR for FY 2023-24. Hence, taxpayers are being asked to update their filings.”
Search and Seizures Conducted for Crypto Tax Evasion
Some individuals have already experienced search and seizure operations. In several cases, hardware wallets were confiscated.
Priyanka Jain, Partner at Vsih & Associates, explained:
- The department invoked Section 131 of the Income Tax Act to search premises.
- Officials requested full disclosure of wallet holdings, mining data, foreign trading, and all transactions.
- Despite cooperation, a follow-up notice was issued due to the department’s suspicion of underreporting.
- Also Read :
- Crypto Regulations in India 2025
- ,
How to Report Cryptocurrency Income in Your ITR: Step-by-Step Guide
If you’re a crypto investor, trader, or miner in India, here’s exactly how to report your crypto earnings in your Income Tax Return (ITR) and stay compliant with the law:
- Choose the Correct ITR Form
Select the ITR form based on how you earn from crypto:
ITR-2: Use this if your crypto income is from long-term or short-term capital gains (e.g., investment purposes).
ITR-3: Use this if you’re actively trading crypto or earning from it as a business activity.
Using the wrong form can lead to rejection or scrutiny from the tax department.
- Declare All Crypto Income Sources
You must disclose all income earned through crypto, including:
1. Buying and selling of cryptocurrencies
2. Mining rewards (treated as income from other sources or business income)
3. Airdrops and staking rewards
4. Crypto received or used as payment
5. Profits from holding or long-term investment gains
Even small or irregular income must be reported to avoid penalties.
- Apply the Right Tax Rate
All crypto income in India is taxed at a flat 30% rate under Section 115BBH, regardless of your income bracket. Additionally:
1. No deductions (except cost of acquisition) are allowed.
2 .A surcharge and 4% health and education cess will also apply
- Verify TDS Deductions in Form 26AS
Crypto exchanges are required to deduct 1% TDS (Tax Deducted at Source) on every transaction under Section 194S. You should:
1. Download your Form 26AS from the income tax portal.
2. Cross-check all TDS entries related to your crypto trades.
3. Ensure all deductions are credited to your PAN account.
- Keep All Transaction Records
Maintain detailed and organized records of your crypto activity, including:
1. Wallet addresses
2. Screenshots of transactions
3. Exchange trading history
4. Foreign exchange logs
5. Details of P2P or OTC transactions
This will help in case of audits or further inquiries by the Income Tax Department.
- File Before the Deadline
Submit your ITR before the due date (usually July 31st for individuals). Filing late can attract penalties and interest, even if the tax is already paid.
Final Checklist: How to Avoid Crypto Tax Trouble in India
| Step | Action |
| 1 | Use the correct ITR form (ITR-2 or ITR-3) |
| 2 | Declare all crypto income and activity |
| 3 | Apply 30% tax under Section 115BBH |
| 4 | Verify TDS in Form 26AS |
| 5 | Maintain complete transaction records |
| 6 | File the return before the due date |
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FAQs
India imposes a flat 30% tax on crypto gains and a 1% TDS on transfers over ₹10,000, with no loss set-off.
India has a multi-agency approach involving RBI, SEBI, and the Ministry of Finance to oversee various aspects of cryptocurrency.
Yes, from April 1, 2025, SEBI began monitoring crypto tokens resembling securities, aligning with a multi-agency regulatory model.
