Summary of this article
Omitted crypto sales, swaps and payments may need ITR disclosure
Crypto gains attract 30 per cent tax under Section 115BBH
Taxpayers should reconcile Schedule VDA with AIS and Form 26AS
ITR-U may allow eligible taxpayers to correct past crypto omissions
Crypto transactions left out of an income tax return (ITR) can create problems later, especially when the income tax department (ITD) has information through Tax Deducted at Source (TDS) reporting, Annual Information Sheet (AIS) data or crypto platforms. Taxpayers who discover an omission may need to reconstruct old transactions, calculate taxable gains and check whether an updated return can still be filed.
What Crypto Transactions Need To Be Reported
The disclosure is not limited to crypto sold for rupees. Swaps, use of crypto for payments and other taxable transfers may also have to be included. Simply holding crypto is not a taxable event.
“Every taxable transaction in virtual digital assets that got left out of the original return needs to be disclosed — sales, swaps, crypto used as payment, and any other transfer that attracts tax under Section 115BBH,” says Dinesh K. Jain, managing partner, Dinesh Aarjav & Associates, chartered accountants.
Where records are incomplete, taxpayers may have to rebuild the transaction trail using exchange reports, wallet records, bank statements and confirmation emails. A working note explaining the assumptions and methodology can also help if the return is later examined.
“The more defensible approach is reconstructing the trail through bank statements showing INR deposits used to buy crypto, wallet transaction histories, and the exchange's own downloadable trade ledger; most exchanges retain this even years later,” says Shourya Garg, advocate, Garg & Garg Tax Associates.
Tax, TDS And ITR-U Cost
Updated income tax return (ITR-U) allows eligible taxpayers to voluntarily correct income that was left out or under-reported, subject to statutory conditions. The updated return window now extends to 48 months from the end of the relevant assessment year. According to Garg, AY 2022-23 through AY 2025-26 are currently open, while AY 2021-22 has closed.
Crypto gains are taxed at 30 per cent under Section 115BBH, plus surcharge and cess as applicable. Apart from acquisition cost, other expenses cannot be claimed, while losses on one Virtual Digital Asset (VDA) transaction cannot be adjusted against other gains or carried forward.
“When putting together an updated return, the first step should be reconciling every taxable transaction against Schedule VDA, then matching that against the TDS deducted under Section 194S as it shows up in AIS and Form 26AS,” says Dinesh K. Jain.
Taxpayers should match Schedule VDA transactions with TDS under Section 194S appearing in AIS and Form 26AS. Tax, interest and ITR-U additional tax may then become payable.
“That additional tax is calculated on tax plus interest combined, not on the income itself, so the earlier someone files, the more meaningfully cheaper it is,” says Garg.
