Cryptocurrency investors who have not accurately reported their digital asset income in their 2026 income tax returns (ITRs) may soon find themselves under the scrutiny of the tax department. A significant mismatch between an investor's ITR details and the transaction data, particularly Tax Deducted at Source (TDS) information reported by cryptocurrency exchanges, is a primary trigger for potential income tax notices.
Punit Agarwal, Founder and CEO of KoinX, a platform specializing in cryptocurrency tax and portfolio management, emphasizes that investors should not assume their unreported crypto transactions remain invisible to tax authorities. Many crypto exchanges operating in India are mandated to deduct TDS under Section 194S and independently report this data. If an ITR shows no crypto income while an exchange has reported TDS against the same Permanent Account Number (PAN), this discrepancy immediately flags a reporting gap.
What to Do If You Missed Reporting Crypto Income
Investors who discover they have completely omitted crypto income from their ITR should first meticulously establish the correct amount of income. This involves collecting comprehensive transaction histories from every crypto exchange used during the relevant financial year. Gains should then be calculated accurately under Section 115BBH.
Once the correct figures are determined, taxpayers should proceed to file a belated or revised return, depending on the applicable filing window. Agarwal stresses that simply paying the due tax is insufficient; the income must be explicitly reflected in the ITR itself. He advises against ignoring omissions, even if the amounts involved appear small.
Why Proactive Correction is Crucial
For investors aware of an omission or error in their returns, voluntarily correcting the information is far more advantageous than waiting for a tax notice. Agarwal warns that while voluntary correction entails paying the tax due plus interest, receiving a notice adds a penalty on top of both, and in severe cases, could lead to prosecution.
Moreover, a practical consideration is that once a notice is issued, the taxpayer is bound to respond within the department's strict timelines, losing the flexibility to address the discrepancy proactively.
Common Crypto Tax Mistakes to Avoid
Agarwal highlights several recurring errors among crypto investors:
- Incorrect Netting of Gains and Losses: Investors often incorrectly net gains and losses across different digital assets, despite the requirement to calculate transactions individually. Losses under Section 115BBH also have specific rules regarding their offset that investors frequently misunderstand.
- Incomplete Records: Trading across multiple exchanges but using transaction data from only one platform can lead to both understated gains and TDS credit. Comprehensive records from all platforms are essential.
- Failure to Reconcile TDS: Investors frequently fail to reconcile the TDS reported by exchanges with the TDS they claim in their returns. These figures should match, making reconciliation a critical pre-filing check.