Many crypto investors assume that once 1% TDS has been deducted on a crypto transaction, they have no further tax liability. According to Mint reports, TDS is only a tax collection mechanism that helps the Income Tax Department track transactions, and investors must still calculate their taxable gains, report them in appropriate schedules, and pay any additional tax liability after adjusting the TDS already deducted. As reported by Mint, every transfer of a virtual digital asset is reportable irrespective of the quantum of gains, and discrepancies between exchange records, Form 26AS, the Annual Information Statement (AIS) and the income tax return are increasingly easier to identify. Pranav Pagaria, SVP – Finance & Strategy at CoinDCX, emphasizes that "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."
Crypto income should be reported on the dedicated Schedule VDA instead of under capital gains or income from other sources. According to Mint reports, investors should ensure that crypto income is disclosed under the dedicated Schedule VDA, introduced specifically for virtual digital assets. As reported by Mint, income from the transfer of VDAs is taxed at a flat 30% under Section 115BBH, with no deduction allowed other than the cost of acquisition. Prateek Gupta, Head of Business at Mudrex, highlights that "ITR-1 and ITR-4 cannot be used when you have income from crypto or NFTs. You need ITR-2 for investment gains or ITR-3 where crypto trading constitutes business income, and Schedule VDA must be filled transaction-wise, not as a lump sum." Pagaria from CoinDCX explains that "Investors should also ensure that crypto income is disclosed under the dedicated Schedule VDA, introduced specifically for virtual digital assets. Reporting gains under capital gains or income from other sources instead of Schedule VDA can create inconsistencies when tax authorities reconcile return data with information available through exchanges and TDS filings."
Some taxpayers skip reporting crypto trades if the gains are small or if they have incurred losses. According to Mint reports, every transfer of a virtual digital asset is reportable irrespective of the quantum of gains. Since domestic exchanges deduct TDS and report transactions, discrepancies between exchange records, Form 26AS, the Annual Information Statement and the income tax return are increasingly easier to identify. As reported by Mint, investors should retain transaction histories, trade confirmations, wallet transfer records and exchange-generated tax reports throughout the financial year rather than attempting to reconstruct them during the filing season. Pagaria from CoinDCX notes that "Since domestic exchanges deduct TDS and report transactions, discrepancies between exchange records, Form 26AS, the Annual Information Statement and the income tax return are increasingly easier to identify."
Before filing, taxpayers should reconcile their records with Form 26AS and the Annual Information Statement. According to Mint reports, the TDS deducted by exchanges should match the credit reflected in these statements, and any mismatch should be resolved before filing, as incorrect TDS claims may delay refunds or trigger follow-up queries from the tax department. As reported by Mint, the Income Tax Department tracks your transactions, and even small reporting mistakes can result in mismatches, delayed refunds or even tax notices. Pagaria from CoinDCX emphasizes that "The TDS deducted by exchanges should match the credit reflected in these statements. Any mismatch should be resolved before filing, as incorrect TDS claims may delay refunds or trigger follow-up queries from the tax department." He adds that "Investors should retain transaction histories, trade confirmations, wallet transfer records and exchange-generated tax reports throughout the financial year rather than attempting to reconstruct them during the filing season."
According to Mint reports, experts emphasize that accurate reporting of every crypto transaction is becoming increasingly important as tax authorities rely more on technology-driven verification. Pagaria from CoinDCX advises investors to "treat crypto tax filing as a reconciliation exercise rather than simply a tax payment obligation." He notes that investors who trade across multiple exchanges or transfer assets to self-custody wallets should maintain a proper audit trail, even if wallet-to-wallet transfers themselves may not be taxable events. Gupta from Mudrex stresses that "mismatches between Schedule VDA and Form 26AS are a leading cause of defective return notices." He points out that the ITR-U, under Section 139(8A) of the Income Tax Act, allows taxpayers to voluntarily correct returns filed for up to four previous financial years, with the cost of voluntary self-correction being a fixed additional amount on top of tax and interest owed, which rises the longer you wait.
