If you bought, sold, exchanged, or spent crypto during FY 2025-26, you may have to report those transactions separately in your income tax return.
Crypto transactions are reported differently from most other assets. The return form you file, the schedule you complete, and the information you report depend on how your income is classified under the Income Tax Act.
1. Choose the correct ITR form
If you have taxable crypto transactions, ITR-1 and ITR-4 are generally not available.
You will usually file ITR-2 if your crypto transactions are reported as capital gains, or ITR-3 if they are reported as business income. The classification depends on the facts of your case, including the nature of your activity, the frequency of transactions, and whether you are carrying on a business.
Use the ITR form that matches your tax treatment.
2. Report your transactions in Schedule VDA
Income from virtual digital assets is reported in Schedule VDA.
Keep a record of each taxable transaction, including the date of acquisition, the date of transfer, the cost of acquisition, and the consideration received. Use these records to complete the schedule in your return.
3. Identify every taxable transaction
Prepare a complete list of your crypto transactions before you start your return.
Taxable events can include selling crypto, exchanging one virtual digital asset for another, or using crypto to purchase goods or services, subject to the provisions of the Income Tax Act. Use your exchange statements, wallet records, and transaction history to identify the transactions you need to report.
Taxable transactions include:
- Selling crypto for cash
- Swapping one crypto for another
- Converting crypto into or out of a stable coin
- Selling an NFT
- Peer-to-peer (P2P) transactions
- Over-the-counter (OTC) transactions
Non taxable transactions on the other hand include:
- Transferring crypto between wallets that you own, since there is no change in ownership
- Every crypto-to-crypto swap is a taxable event, even if the money never leaves the exchange. Missing these transactions can result in an incomplete return.
4. Report airdrops, staking rewards, and gifts separately
Airdrops, staking rewards, and certain crypto gifts are reported differently from sales and should be disclosed separately in your return.
Airdrops and staking rewards are generally taxable as income at their fair market value on the date you receive them. That value becomes the cost of acquisition when you later sell the tokens.
Crypto gifts exceeding ₹50,000 in a financial year may be taxable in the recipient’s hands, unless they are received from specified relatives or on specified occasions under the Income Tax Act.
5. Compute your tax correctly
Virtual digital assets are taxed under a separate tax regime. When calculating your tax liability, keep the following rules in mind:
- Income from the transfer of virtual digital assets is generally taxed at 30%, plus applicable surcharge and 4% health and education cess.
- Only the cost of acquisition is allowed as a deduction. Expenses such as exchange fees, brokerage, wallet charges, gas fees, blockchain fees, mining costs, electricity, internet, and transaction charges are generally not deductible.
- Losses from one virtual digital asset cannot generally be set off against gains from another virtual digital asset or against any other income. Such losses also cannot be carried forward to future years.
- If a virtual digital asset has become worthless but you continue to hold it, a loss is generally not recognised until there is a taxable transfer or other event under the Income Tax Act.
6. Claim TDS credit
Tax may be deducted at source (TDS) at 1% on certain transfers of virtual digital assets under Section 194S. This is tax collected in advance and can be claimed as a credit while filing your ITR.
Before filing, verify that the TDS is reflected in your Form 26AS or Annual Information Statement (AIS). Claim only the TDS that appears in your tax records.
7. Report overseas crypto, where applicable
If you are a resident in India, your global income may be taxable under the Income Tax Act. Virtual digital assets held through foreign exchanges or overseas wallets may also need to be reported, depending on your circumstances.
Review the applicable reporting requirements before filing your return.
8. Reconcile your records before filing
Crypto exchanges report transaction details to the Income Tax Department. Before you file your return, reconcile your exchange statements with your Form 26AS, Annual Information Statement (AIS), and the information reported in Schedule VDA.
Common issues that may result in further verification include:
- Mismatches between your AIS or Form 26AS and your ITR
- Exchange-reported transactions that are not reflected in your return
- Incorrect reporting of losses from virtual digital assets
- Missing crypto-to-crypto transactions
- Errors in Schedule VDA
- Incorrect TDS claims
- Failure to report overseas holdings, where applicable
- Significant trading activity with no corresponding virtual digital asset income reported
- Depending on the facts of the case, incorrect reporting may result in reassessment proceedings, interest, penalties under the Income Tax Act, or other action as provided by law.
Need help filing your return?
If your return includes virtual digital assets, consider getting professional assistance, especially if you have multiple exchanges, frequent trades, overseas holdings, or a mix of investment and trading activity.
With expert-assisted filing through planmytax.ai, qualified tax professionals can help you:
- Choose the appropriate ITR form based on your income and trading activity
- Report transactions correctly in Schedule VDA
- Report airdrops, staking rewards, and crypto gifts appropriately
- Verify and claim eligible TDS credits
- Reconcile your return with your Form 26AS and AIS
- Respond to tax notices, if required
- Keep your exchange statements, wallet records, and supporting documents ready before you begin your return.
File your ITR with 1 Finance via planmytax.ai today.
Disclaimer: This is not financial advice. Only a SEBI-registered advisor can provide financial advice. For investment planning, consult a Qualified Financial Advisor.
