How is cryptocurrency income taxed and what happens if I do not disclose it?

Question

I traded and earned profit in cryptocurrency and want to know how it is taxed in India and what the penalty is for not disclosing it. I have been reading conflicting things online and I would like to understand what Indian law actually says about this, which Act and Section applies, what the realistic timelines and costs are, and what I should be doing right now to protect my position. If the matter can be resolved without litigation I would prefer that route, but I want to know what my rights are before I agree to anything or sign any document.

MyVakeel Legal Desk · Accepted Answer

How is cryptocurrency income taxed and what happens if I do not disclose it? is governed in India primarily by Income Tax Act 1961, Section 115BBH, Income Tax Act 1961, Section 194S, Income Tax Act 1961, Section 271AAC and Prevention of Money Laundering Act 2002, Section 3. The short answer is set out below, followed by the practical steps most people in this situation need to take. Read it alongside the specific provisions named, because the exact relief available to you turns on the facts you can prove on paper.

Income from transfer of a virtual digital asset such as cryptocurrency or NFTs is taxed at a flat rate of thirty percent under Section 115BBH of the Income Tax Act 1961, with no deduction allowed except cost of acquisition.

Losses from one virtual digital asset cannot be set off against gains from another virtual digital asset or any other income under the same section.

A one percent tax deducted at source applies on transfer of virtual digital assets above the prescribed threshold under Section 194S of the Income Tax Act 1961.

Failure to disclose crypto income attracts a penalty of ten percent of the tax payable under Section 271AAC of the Income Tax Act 1961, apart from interest and reassessment.

Where crypto is used to layer proceeds of an underlying scheduled offence, the transaction can additionally be probed under Section 3 of the Prevention of Money Laundering Act 2002.

What to do next: 1) Maintain a complete transaction ledger from every exchange used during the year; 2) Report virtual digital asset gains separately in the income tax return under Schedule VDA; 3) Reconcile TDS deducted under Section 194S with Form 26AS before filing; 4) Consult a chartered accountant if past returns omitted crypto income, to file an updated return.

If the other side has already issued a notice, filed a case or set a deadline, treat the matter as time-sensitive — most remedies under Income Tax Act 1961, Section 115BBH carry limitation periods, and a delay you cannot explain weakens an otherwise strong case. You can post the details on the MyVakeel forum for a practising advocate to review, or book a paid consultation with a Bar Council verified lawyer in this practice area.