Investors in cryptocurrencies in India face increased scrutiny from the Income Tax Department due to potential reporting errors in their income tax returns (ITR) for the fiscal year 2025-26. According to Pranav Pagaria, Senior Vice President of Finance & Strategy at CoinDCX, even minor mistakes in reporting can lead to mismatches, delayed refunds, or tax notices.
Key Details
Pagaria emphasized that many investors mistakenly believe that the 1% Tax Deducted at Source (TDS) on crypto transactions absolves them of further tax obligations. He stated,
TDS is only a tax collection mechanism that helps the Income Tax Department track transactions. Investors must still calculate their taxable gains, report them in the appropriate schedules and pay any additional tax liability after adjusting the TDS already deducted.
Common pitfalls include failing to report small gains or losses and incorrectly categorizing crypto income. Pagaria noted that every transfer of a virtual digital asset must be reported, regardless of the gain size. He advised that crypto income should be disclosed under the dedicated Schedule VDA, rather than under capital gains or income from other sources, to avoid discrepancies with tax records.
Background
As the government tightens its grip on cryptocurrency transactions, investors are urged to ensure compliance with tax regulations to avoid penalties. For further insights on the evolving landscape of crypto taxation, see this article.
Related coverage: Crypto Futures Reach 80% of India’s Trading Volume Amid Tax.
Increased scrutiny on crypto tax filings could lead to greater compliance costs for investors, particularly in the cryptocurrency sector. This scrutiny may affect trading volumes and investor sentiment in the crypto market as participants navigate the complexities of tax obligations. Watch for upcoming announcements from the Income Tax Department regarding further guidelines on crypto taxation.