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Crypto Investors on Tax Radar: Income Tax Department Issues Notices — Here's How to File Your Crypto Earnings in ITR

Siddhi Jain | June 16, 2025 12:15 PM CST

If you've been trading or investing in cryptocurrency and haven't reported it in your Income Tax Return (ITR), you're likely on the radar of the Income Tax (IT) Department. With the Central Board of Direct Taxes (CBDT) tightening scrutiny, thousands of investors are now receiving tax notices over non-disclosure or misreporting of crypto-related income.

This crackdown is part of a broader effort to track undisclosed income and prevent tax evasion and money laundering through Virtual Digital Assets (VDAs), including cryptocurrencies like Bitcoin, Ethereum, and others. Let’s break down what this means for investors and how to properly declare your crypto earnings in your ITR.

🔍 Why the Income Tax Department is Sending Notices

According to a PTI report citing senior tax officials, the CBDT has identified several individuals suspected of routing unaccounted money into cryptocurrency. These individuals are now under investigation for potential tax evasion and money laundering.

The tax department has already issued email notices to thousands of defaulters who either failed to report crypto transactions or declared incorrect information in their ITRs for the last two assessment years. These notices urge taxpayers to file updated returns promptly to avoid penalties and legal consequences.

💸 How Crypto Income is Taxed in India

Since April 2022, India’s tax regime classifies all gains from cryptocurrencies under Virtual Digital Assets (VDA). Here's how the taxation works:

Transaction Type	Applicable Tax
Buying crypto	1% TDS on transaction
Selling crypto (for INR or other assets)	30% flat tax on profits
Crypto-to-crypto trading	30% tax on gains
Spending crypto (e.g., purchases)	30% tax on any profit
Holding crypto (no sale)	No tax
Transferring between wallets	No tax
Airdrops/Hard forks	Slab rate on receipt; 30% on sale
Gifting crypto	Taxable unless < ₹50,000 or from relatives
Crypto donations	30% tax on gains; no deductions
Mining/Staking rewards	Slab rate initially, 30% on gains upon sale

Note: Crypto losses cannot be set off against other income or carried forward to future years.

🧾 How to File Your ITR if You Have Crypto Income

If you’ve made gains from crypto, here’s a step-by-step guide to reporting them properly:

Login to the Income Tax e-Filing Portal
Visit incometax.gov.in and log in using your PAN and password.
Select the Appropriate ITR Form
- ITR-1: For salaried individuals (not for crypto investors)
- ITR-2: If you’ve made capital gains from crypto investments
- ITR-3: If crypto trading is your main business
Disclose All Income Sources
Include salary, capital gains (including from crypto), interest, and other sources.
Cross-check Tax Deductions & TDS
Use Form 26AS and AIS (Annual Information Statement) to verify tax deductions and ensure all TDS (Tax Deducted at Source) is correctly reported.
Submit & Verify Your Return
After filling out the return, verify using Aadhaar OTP, net banking, or by sending a physical signed copy.

📚 Things to Keep in Mind

Maintain Records: Track every transaction — including purchase/sale dates, prices, and profits/losses.
Calculate Net Gains: Subtract acquisition costs from the sale price to determine gains.
TDS Matters: Check Form 26AS for correct 1% TDS reporting. If there’s a mismatch, fix it promptly.
Compliance is Crucial: Proper reporting can shield you from penalties, audits, and future tax scrutiny.

🛑 Final Word: Don’t Ignore Crypto Tax Compliance

With the IT Department actively monitoring crypto investments, non-disclosure can lead to serious consequences. Filing accurate returns with all crypto gains accounted for isn’t just legally mandatory — it’s a smart way to stay financially secure and avoid unwelcome tax trouble.