With tax authorities relying more on technology-driven verification, experts say accurate reporting of every transaction is becoming increasingly important.
From selecting the correct form to maintaining transaction records across exchanges and wallets, investors need to pay close attention to disclosures to avoid notices and ensure smooth tax filing.
Treat crypto tax filing as a reconciliation exercise
While most crypto investors are aware that gains from Virtual Digital Assets (VDAs) attract a flat 30% tax and are subject to specific reporting requirements, experts say the bigger challenge now lies in filing accurate and complete disclosures.
According to Pranav Pagaria, SVP – Finance & Strategy, CoinDCX, investors often make the mistake of focusing only on profitable trades while ignoring other reportable transactions.
“As tax reporting becomes increasingly technology-driven, even small inconsistencies across records can lead to avoidable follow-up queries. Investors should therefore treat crypto tax filing as a reconciliation exercise rather than simply a tax payment obligation,” Pagaria added.
Maintain records across exchanges and wallets
Pagaria said 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.
“Most exchanges now provide downloadable transaction statements and tax reports that help reconcile trades executed during the financial year. Using these records significantly reduces the possibility of reporting errors, particularly for investors with high trading frequency or diversified crypto portfolios,” he mentioned.
He added that investors should review all transactions executed during the relevant financial year, especially those carried out close to the year-end, as these are often overlooked during tax filing.
Pagaria further noted that documentation becomes even more important for investors who have received token rewards, airdrops or blockchain-based incentives.
“Maintaining detailed records of how assets were acquired, transferred and eventually disposed of becomes increasingly important for accurate reporting. Investors should also preserve exchange statements, wallet records and transaction confirmations even after filing their returns,” he added.
Choose the correct ITR form
Prateek Gupta, Head of Business, Mudrex, highlighted that selecting the wrong remains one of the most common mistakes among crypto investors.
“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,” he added.
Gupta also stressed the importance of reconciling the tax deducted at source (TDS) reflected by exchanges with Form 26AS and the Annual Information Statement (AIS) before filing the return.
“Mismatches between Schedule VDA and Form 26AS are a leading cause of defective return notices. Staking rewards, airdrops, and mining income are taxable as income upon receipt at slab rates, and when you later sell the received crypto, the profit is taxed again at 30%,” he explained.
ITR-U offers a chance to correct past mistakes
Gupta pointed 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.
“The cost of voluntary self-correction through ITR-U is a fixed additional amount on top of tax and interest owed, which rises the longer you wait,” he said.
He added that “it is still meaningfully lower than what follows if the department identifies the mismatch first, where penalties for under-reporting can reach 50% of the tax owed, and 200% in cases treated as misreporting.”