The move is part of the department’s Non-intrusive Usage of Data to Guide and Enable (NUDGE) initiative, aimed at encouraging voluntary compliance without coercion.
Officials say many taxpayers either didn’t file the mandatory ‘Schedule VDA’ or misreported the nature of gains from virtual digital assets (VDAs), such as cryptocurrency.
Several taxpayers are suspected of using unaccounted funds to invest in crypto, raising red flags for possible tax evasion and money laundering.
These notices serve as a reminder: all income from crypto—be it from trading, mining, staking, airdrops, or salary paid in crypto—must be disclosed in your Income Tax Return (ITR).
What the law says?
Under Section 115BBH of the Income Tax Act, introduced by the Finance Act of 2022, income from VDAs is taxed at a flat 30%, regardless of the holding period. No deductions are allowed—except the cost of acquisition.
You also cannot offset crypto losses against any other income or carry them forward.
Further, a 1% Tax Deducted at Source (TDS) under Section 194S applies to all crypto transactions.
“Crypto assets attract a flat 30% tax. TDS compliance is crucial—failure to deduct or deposit it could lead to penalties or even imprisonment,” explains Sumit Gupta, Co-founder at CoinDCX.
How to report crypto in ITR?
Choose the correct form: Use ITR-2 if crypto gains are treated as capital gains. Use ITR-3 if trading is part of your business income.
Declare all types of crypto income: This includes buying and selling, as well as staking rewards, mining proceeds, airdrops, and payments received in crypto.
Verify TDS details: Check Form 26AS to ensure accurate TDS deduction by your exchange.
No shortcuts: You cannot claim cost indexation or adjust losses from crypto against other income.
“Just like equity gains, crypto gains must be reported with equal seriousness,” says Edul Patel, Co-founder & CEO of Mudrex.
Why you should use compliant platforms
Tax officials say that discrepancies often arise when investors use offshore or unregulated platforms that don’t deduct TDS or offer proper transaction summaries.
“To avoid filing errors, it’s best to use regulated Indian platforms that deduct TDS automatically and offer built-in tax reporting tools,” Gupta adds.
A dedicated ‘Schedule VDA’ will be introduced from FY 2025–26 in the ITR forms to streamline crypto reporting further.
