As the ITR filing deadline approaches, it's important to understand that your crypto investments can no longer be kept under wraps. The Indian government has classified cryptocurrencies as Virtual Digital Assets (VDA) and brought them under the tax net since 2022. Any income from crypto trading or investment now attracts a flat 30% tax, along with 1% TDS on transactions above certain thresholds.

Failing to disclose these assets during Income Tax Return (ITR) filing can lead to penalties, interest, or even legal prosecution. Here's a detailed guide on how to report crypto in your ITR and avoid trouble.

Why Is It Mandatory to Declare Crypto Holdings?

Since July 1, 2022, the Income Tax Act mandates reporting of income from virtual digital assets. The rules include:

• 30% flat tax on crypto income, without any deductions.

• 1% TDS on transactions above ₹50,000 per year (₹10,000 in some cases).

• Non-disclosure can result in notices, penalties, and prosecution from the Income Tax Department.

How to Declare Crypto in Your ITR

1. Identify the Type of Income

Determine if your crypto income falls under:

• Capital Gains (for long-term holding and occasional selling).

• Business Income (if trading is done regularly or as a profession).

2. Choose the Right ITR Form

• Use ITR-2 if you have salary income and occasional crypto gains.

• Use ITR-3 if crypto trading is your business or done frequently.

3. Report Profits and Losses

Mention:

• The purchase price and selling price of each crypto transaction.

• Calculate the net profit or loss.

• Note: Losses from crypto cannot be set off against other incomes, nor can they be carried forward.

4. Pay 30% Tax on Crypto Income

Crypto earnings are taxed at 30%, plus surcharge and cess. There is no basic exemption limit, even for small investors.

5. Verify TDS Deductions

Check your Form 26AS or statements from your crypto exchange to ensure:

• 1% TDS has been correctly deducted.

• If not, you may be liable to pay the difference yourself.

What Happens If You Don’t Report Crypto Investments?

Non-compliance can attract:

• Penalties under Section 270A of the Income Tax Act.

• Interest on unpaid taxes.

• Prosecution in severe cases.

The Income Tax Department now uses AI tools and data analytics to track lifestyle expenses, high-value purchases, and even travel history to detect undeclared income—including crypto.

Final Word

With crypto now firmly under the tax radar, transparency is key. Filing your ITR accurately and disclosing all crypto-related income will help you stay compliant and avoid unnecessary legal headaches. Don’t let ignorance or avoidance turn your digital assets into a tax liability.