In July 2024, the Lazarus Group, the North Korea-linked threat actor responsible for some of the largest crypto thefts in history, drained more than $230 million (₹2,000 crore) from WazirX in a single attack. Withdrawals froze, trading halted, and millions of users suddenly lost access to their funds.
Months later, some users discovered a second shock: the Indian tax system still treated many of those frozen transactions as completed taxable income.
One Reddit user opened a Form 16A and found ₹20,478 recorded as income from the transfer of virtual digital assets, with TDS already deducted under Section 194S. The figures also appeared in Form 26AS. On paper, the transaction looked complete. In reality, the funds remained stuck inside an exchange under restructuring.
Frozen Funds, Active Tax Entries
Their question on Reddit captured the confusion: “How should I handle this discrepancy while filing my ITR?”
What followed after the hack was a year of court hearings across two jurisdictions, a Singapore High Court-sanctioned restructuring in October 2025, and a phased recovery plan promising users somewhere between 75% and 85% of their frozen balances, with the remainder tied to Recovery Tokens redeemable over 2026 to 2028. For most users, the money is still not fully back.
India’s tax system, in the meantime, has continued operating exactly as designed. It recorded the transactions, noted the TDS deductions, and filed the Form 26AS entries. And it is now asking users to account for income that many of them never meaningfully controlled.
Why Form 26AS Does Not Know What Happened to Your Money
Understanding precisely how this mismatch occurs is worth the time it takes, as it explains why the problem cannot be resolved by simply ignoring the Form 26AS entry.
When a crypto exchange processes a sell transaction, it deducts 1% TDS under Section 194S and reports the gross transaction value to the government through TDS returns. This happens at the moment the transaction is processed, not at the point of withdrawal or fund settlement, nor at the point the user actually receives or spends the money.
Under normal operating conditions, this distinction is invisible. Transaction processing and fund availability happen close enough together that no user ever thinks about the gap between them.
WazirX in 2024 was not operating under normal conditions. Withdrawals had been halted. The hack compromised a significant portion of the exchange’s holdings. Users found themselves with transaction records showing completed trades, with TDS deducted accordingly, but their balances were locked inside an exchange navigating restructuring proceedings in Singapore.
Form 26AS sees the TDS deduction, not what happened to the funds afterward. The AIS records that money moved; it does not record that the money became inaccessible before the user could touch it. The result is a Form 26AS that accurately reflects what the exchange reported and completely fails to reflect the user’s actual financial position.
Three Problems, Each Requiring a Separate Answer
What makes this situation genuinely difficult is that it is not a single problem with a single answer. It is three problems stacked on top of each other, each requiring different documentation and a different filing decision.
The income recognition problem. Form 26AS shows ₹20,478 as income. Filing an ITR that does not account for this figure will likely trigger a mismatch flag. Filing that does account for it means declaring income that the user may argue was never actually received. Neither of the paths is clean without documentation.
The TDS credit problem. The ₹204 TDS deduction appears in Form 26AS and is technically claimable as a credit against the user’s tax liability. But claiming it means acknowledging the underlying transaction as valid. For a user who disputes whether the proceeds were truly received, accepting the TDS credit is not a straightforward decision. In practice, most CAs advise claiming the credit while separately documenting the disputed nature of the underlying transaction.
The cost basis problem. If the transaction is treated as a completed sale, because the exchange processed it, reported it, and deducted TDS, then the taxable gain is not ₹20,478. It is ₹20,478 minus the asset’s original acquisition cost. A user who acquired the asset at ₹15,000 has a gain of ₹5,478, not ₹20,478, and the tax owed is 30% of ₹5,478, not 30% of ₹20,478. Without the complete transaction history establishing that acquisition cost, the user cannot calculate the correct figure, cannot file the correct ITR, and has no basis to dispute the gross amount the department sees.
What the ITR Actually Requires
The chartered accountants who have addressed cases like this in Indian tax forums converge on the same framework, and it is worth stating plainly: you cannot file around a Form 26AS entry. You file through it, with the correct numbers.
Step 1: Reconstruct the complete transaction history. Every buy, every sell, every transfer on WazirX for the relevant financial year is imported into KoinX to establish the acquisition cost of every disposed asset. This is the foundation of everything that follows.
Step 2: Calculate the correct Schedule VDA figure. Net taxable income is sale proceeds minus acquisition cost on every disposal. The gross AIS figure and the net ITR figure are both derivable from the same transaction history. KoinX produces both from the same import.
Step 3: Document the inaccessibility. WazirX’s withdrawal freeze notice, the July 18, 2024, hack disclosure, and any restructuring correspondence constitute supporting material if the ITD queries the return. This documentation does not change the tax calculation, but it establishes the factual context if a notice arrives.
Step 4: File correctly, claim the TDS credit, and retain everything. The ₹204 TDS credit is valid regardless of whether the underlying funds are accessible. Claim it. File the correct net income figure. Keep the documentation.
This is where the records question becomes acute, and it is where KoinX enters the picture before the CA does, because no advisor can advise without the numbers. With the KoinX import, the CA receives a complete, cost-basis-calculated Schedule VDA output rather than a reconstruction problem.
Getting It Right With KoinX
KoinX is a global crypto tax platform trusted by over 1.5 million users across 100+ countries, with 800+ exchange and wallet integrations. WazirX integration on KoinX imports the full transaction record and applies cost basis calculations across every disposal, producing the Schedule VDA figure the ITR actually requires rather than the gross receipt figure the exchange reported.
Generate your ITD accurate WazirX crypto tax report with KoinX, in 3 easy steps:
Step 1: Sign up with KoinX
Step 2: Integrate WazirX with KoinX & Review Transactions
A complete WazirX CSV export imported into KoinX allows the platform to reconstruct the actual cost basis of every disposed asset, something Form 26AS was never designed to do.”
By generating an ITD-compliant crypto tax report with KoinX, the user in question can access three things simultaneously.
What Form 26AS shows | What the ITR actually requires |
₹20,478 gross transaction value | Actual gain: sale proceeds minus acquisition cost |
₹204 TDS deducted | ₹204 claimable as credit, with correct underlying gain established |
Income from VDA transfer | Net taxable income on Schedule VDA after cost basis
|
If the asset was acquired at ₹15,000 and the exchange recorded a sale at ₹20,478, the taxable gain is ₹5,478, not ₹20,478. On a larger portfolio, it is the difference between overpaying significantly and paying what is actually owed.
What the Recovery Plan Means for Future Tax Years
As of October 2025, the Singapore High Court sanctioned WazirX’s restructuring plan, under which users will receive approximately 75% to 85% of their frozen balances through a combination of direct crypto and INR distributions and Recovery Tokens redeemable over 2026 to 2028.
This creates a separate tax question for future financial years. When funds are received through the recovery plan, whether as direct crypto or as Recovery Tokens later sold, those receipts may constitute additional taxable events. The acquisition cost of the Recovery Tokens, for Schedule VDA purposes, will need to be established at the time of receipt. The subsequent sale of those tokens produces a gain calculated against that acquisition cost.
The transaction history from the original WazirX activity, already reconstructed in KoinX, becomes the baseline documentation for this future calculation as well. The two filing challenges, the current year’s Form 26AS mismatch and the future year’s recovery distributions, are not separate problems to solve separately. They are two chapters of the same transaction history, and maintaining that history in one place now is what makes both chapters answerable when they each arrive.
Tax event | When it arises | What KoinX provides |
Original sale reported by WazirX | FY of the transaction | Cost basis calculation, correct Schedule VDA figure |
TDS credit claim | Same FY as sale | TDS reconciliation mapped to each transaction |
Recovery Token receipt | FY of distribution | Acquisition cost at fair market value on receipt date |
Recovery Token disposal | FY of sale | Gain calculated from above acquisition cost
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For the broader context of how WazirX transactions interact with the ITD’s reporting and summons process, the WazirX income tax summons guide covers the specific compliance steps. For understanding scrutiny triggers more broadly, the crypto tax audit triggers guide is the right framework before filing. The crypto tax India guide covers every provision referenced in this article.
