Income Tax Department Takes Strict Action Against Undisclosed Crypto Income

If you’re a crypto investor, trader, or miner in India, here’s exactly how to report your crypto earnings in your Income Tax Return (ITR) and stay compliant with the law:

1. Choose the Correct ITR Form

   Select the ITR form based on how you earn from crypto:
   
   ITR-2: Use this if your crypto income is from long-term or short-term capital gains (e.g., investment purposes).
   
   ITR-3: Use this if you’re actively trading crypto or earning from it as a business activity.
   
   Using the wrong form can lead to rejection or scrutiny from the tax department.

2. Declare All Crypto Income Sources

   You must disclose all income earned through crypto, including:
   
   1. Buying and selling of cryptocurrencies
   
   2. Mining rewards (treated as income from other sources or business income)
   
   3. Airdrops and staking rewards
   
   4. Crypto received or used as payment
   
   5. Profits from holding or long-term investment gains
   
   Even small or irregular income must be reported to avoid penalties.

3. Apply the Right Tax Rate

   All crypto income in India is taxed at a flat 30% rate under Section 115BBH, regardless of your income bracket. Additionally:
   
   1. No deductions (except cost of acquisition) are allowed.
   
   2. A surcharge and 4% health and education cess will also apply

4. Verify TDS Deductions in Form 26AS

   Crypto exchanges are required to deduct 1% TDS (Tax Deducted at Source) on every transaction under Section 194S. You should:
   
   1. Download your Form 26AS from the income tax portal.
   
   2. Cross-check all TDS entries related to your crypto trades.
   
   3. Ensure all deductions are credited to your PAN account.

5. Keep All Transaction Records

   Maintain detailed and organized records of your crypto activity, including:
   
   1. Wallet addresses
   
   2. Screenshots of transactions
   
   3. Exchange trading history
   
   4. Foreign exchange logs
   
   5. Details of P2P or OTC transactions
   
   This will help in case of audits or further inquiries by the Income Tax Department.

6. File Before the Deadline

   Submit your ITR before the due date (usually July 31st for individuals). Filing late can attract penalties and interest, even if the tax is already paid.