- Crypto tax applies to all transfers, not just fiat conversion.
- Reconcile all crypto transaction records with bank, AIS, 26AS.
- VDA gains taxed at 30%, with only acquisition cost deductible.
- TDS functions as tax credit; ensure accurate reporting on return.
ITR Filing 2026: A good tax return resembles a well-kept ledger. Every entry has a corresponding record, every deduction has supporting evidence, and every figure can be traced to its source. That discipline has become particularly important for crypto investors. With the July 31 deadline approaching for most individual taxpayers filing returns for Assessment Year (AY) 2026-27, anyone who bought, sold, or exchanged virtual digital assets (VDAs) during Financial Year (FY) 2025-26 should start by reviewing their records before beginning their calculations.
First Key Question
The first question is straightforward: Did you merely own crypto, or did you transfer it? Many investors assume tax arises only when crypto is converted into rupees. That is not always the case. Selling Bitcoin, exchanging Ethereum for Solana, or transferring one VDA for another may all amount to taxable transfers.
If a transfer has taken place, the Income Tax Return requires reporting through Schedule VDA, which seeks transaction-wise details such as the acquisition date, transfer date, cost of acquisition, and sale consideration.
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Trail Matching
The second question is whether your records match the tax department’s trail. Before filing, reconcile five sets of records: your exchange transaction history, wallet records, bank statements, the Annual Information Statement (AIS), and Form 26AS. Most filing mistakes do not arise because taxpayers hide transactions. They occur because one of these records does not match the others. Reconciling them before filing is considerably easier than responding to a notice later.
The third question concerns the 1% Tax Deducted at Source (TDS). Since the introduction of the VDA tax regime, qualifying transfers above the prescribed thresholds, generally Rs 10,000 in aggregate consideration during a financial year, or Rs 50,000 for specified persons, have attracted TDS under the law. Many investors wrongly assume this is the final tax. It is not. The deduction generally functions as tax credit and should be correctly reflected while filing the return.
Taxation
Next comes the 30% tax on gains from the transfer of VDAs. This figure is widely known, but what is less understood is the treatment of expenses. Unlike many other investments, the law generally permits deduction only of the cost of acquisition while computing taxable VDA income. Expenses incurred on trading, research tools or internet connectivity ordinarily do not qualify as deductions. Similarly, losses from VDAs generally cannot be set off against other income or carried forward in the manner available for several other asset classes.
Exchange Location
Another question worth asking is whether the location of the exchange changes the tax position. It does not. Whether the transaction took place on an Indian platform or an overseas one, Indian tax obligations arise under Indian law. The practical implication is simple: preserve every purchase record, sale invoice, wallet transfer and exchange statement. Good documentation is often the difference between a smooth filing experience and a lengthy reconstruction exercise months later.
Deadlines
There is also a procedural point that has caused understandable confusion this year. Although the Income-tax Act, 2025 has come into force, returns for FY 2025-26 (AY 2026-27) continue to be filed under the applicable provisions governing that assessment year. The Income Tax Department has also progressively enabled online filing utilities for ITR-1, ITR-2, ITR-3 and ITR-4, ensuring that taxpayers across categories can complete their returns electronically.
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Finally, remember that July 31 is not the only date on the compliance calendar. The due date is August 31, 2026 for many non-audit business and professional taxpayers; October 31 for tax-audit cases; and November 30 where transfer pricing provisions apply. Those who miss the original deadline may still have an opportunity to file a belated return, but compliance is almost always simpler when the original deadline is met.
Crypto taxation in India has evolved rapidly over the past few years. The conversation has moved beyond whether digital assets should be taxed to how accurately they are reported. That is why filing a return should not begin with a tax calculator. It should begin with a checklist: verify every transaction, reconcile every TDS entry, complete Schedule VDA wherever applicable, and preserve supporting records. In tax compliance, the most valuable number is not 30% or 1%. It is zero, the number of discrepancies between your records and the return you finally submit.
