India’s Income Tax Department has stepped up enforcement efforts against individuals and entities that have failed to disclose cryptocurrency income in their tax filings. This latest crackdown, powered by advanced data analytics and blockchain tracing, is sending a clear message: unreported crypto earnings will not go unnoticed.

Using its NUDGE framework—short for Non-Intrusive Usage of Data to Guide and Enable—the department is identifying discrepancies between reported income and actual crypto transactions. The government has already issued thousands of tax notices to individuals who engaged in crypto trading, mining, or received tokens as payments but failed to declare them in their Income Tax Returns (ITRs) for the financial year 2023–24.

Unlike earlier years, where general reminders and educational emails were sent, this time the tax department is equipped with transaction-level data. Under Section 194S of the Income Tax Act, a 1% Tax Deducted at Source (TDS) is applicable to crypto trades. If such TDS is reflected in government records but not matched by income disclosure in ITRs, notices are triggered automatically.

Tax experts warn that this is no idle threat. In several instances, the department has conducted search and seizure operations targeting suspected tax evaders. Hardware wallets, trading records, and mining data have been confiscated, and in some cases, fresh notices have been issued even after initial cooperation from the taxpayer.

The heightened scrutiny comes amid an evolving regulatory landscape for crypto in India. While comprehensive laws are still under development, taxation rules are already in force. Individuals dealing in cryptocurrencies must now ensure strict compliance when filing their taxes to avoid financial penalties—or worse, legal consequences.

If you’re a crypto investor, trader, or miner, here’s how to ensure you stay on the right side of the law.

The first step is choosing the correct ITR form. Investors who earn from buying and holding crypto—similar to capital gains on stocks—should use ITR-2. Meanwhile, those actively trading or running a crypto-related business should file under ITR-3, which allows reporting of business income. Filing under the wrong form may lead to rejection or heightened scrutiny from the tax department.

Next, declare all crypto income sources comprehensively. This includes profits from buying and selling, mining rewards, staking or airdrops, payments received in crypto, and even occasional gains from peer-to-peer or over-the-counter trades. Even small amounts or infrequent transactions must be reported to avoid accusations of deliberate non-disclosure.

Crypto income in India is taxed under Section 115BBH at a flat rate of 30%, with no deductions allowed other than the cost of acquisition. On top of this, a surcharge and 4% health and education cess apply. Investors should calculate their tax liability accordingly and ensure it is paid in full before filing.

TDS deductions also require close attention. Since exchanges are required to deduct 1% TDS on each trade, these amounts should appear in your Form 26AS, a document available on the income tax portal that summarizes all TDS entries against your PAN. Cross-check this data to confirm that crypto-related TDS has been properly credited. Missing or mismatched entries should be reconciled before filing.

Maintaining meticulous records is essential. This includes wallet addresses, transaction screenshots, trading history from exchanges, and records of any foreign exchange transactions. Proper documentation not only ensures accurate filing but also protects you in the event of future audits.

Finally, don’t miss the deadline. The ITR filing deadline for individuals is typically July 31, and late filing can attract penalties and interest even if you have paid the correct amount of tax. Filing on time ensures you remain compliant and reduces the risk of future investigations.

In summary, India’s tax department is no longer treating crypto tax as a grey area. With the tools and data now available, the chances of undeclared income slipping through the cracks are rapidly shrinking. For crypto users, the message is clear: report everything accurately, file on time, and treat digital assets like any other taxable investment.