Missed reporting crypto gains last year? You’re not alone, but ignoring it won’t make it go away. The Income Tax Department in India has become highly proactive in tracking virtual digital asset (VDA) transactions, whether they’re on Indian exchanges or international platforms. Many traders assumed crypto was under the radar. That assumption is now landing them in trouble.
With updated tax laws, mandatory 1% TDS, and global data-sharing agreements, skipping crypto income in your previous returns is no longer easy to hide. Penalties can go as high as 200%, and in some cases, a 60% tax can be slapped during tax raids. This guide breaks down the legal implications of not reporting crypto income, what penalties you may face, and the smartest way to fix it before it’s too late.
Understanding the Legal Status of Unreported Crypto Income
Before diving into penalties, it’s essential to understand how the law views unreported crypto income. Recent updates to the Income Tax Act have made this very clear. The government has intentionally created an expansive legal definition to ensure that every form of crypto asset is covered under taxation.
How VDAs Are Legally Defined in India?
Section 2(47A) of the Income Tax Act defines a Virtual Digital Asset (VDA) as any digital code, number, or token created through cryptographic means, which provides a digital representation of value. This covers cryptocurrencies, NFTs, and even future forms of digital tokens that might emerge. The Central Government has the authority to exclude specific assets through notification, but everything else falls under this net.
Unreported Crypto as ‘Undisclosed Income’
The most important shift came in the Finance Act 2025. An amendment to Section 158B included VDAs in the definition of “undisclosed income.” If the ITD discovers these during a raid or investigation, they can impose a 60% flat tax with no deductions, plus penalties.
Breakdown of Financial Penalties for Non-Disclosure
The Income Tax Act imposes tiered penalties for unreported crypto income. Each category reflects the seriousness of the violation, from oversight to deliberate evasion.
Offence | Legal Section | Penalty or Consequence |
Under-reporting of crypto income | Section 270A | 50% of tax due on the unreported amount |
Misreporting of crypto income | Section 270A | 200% of tax due on the misreported amount |
Failure to deduct TDS | Section 271C | Penalty equal to the TDS not deducted |
Failure to deposit deducted TDS | Section 276B | Imprisonment of 3 months to 7 years, plus a fine |
Crypto discovered during ITD raids | Section 158B | 60% flat tax with no deductions, plus 50% penalty |
Penalty for Under-Reporting
Under-reporting refers to cases where taxpayers unintentionally fail to disclose income. Section 270A imposes a penalty of 50% of the tax due on the unreported amount.
For example, if a trader fails to report INR 4 lakh in crypto gains, leading to an INR 1.2 lakh tax liability (at 30%), the penalty would be INR 60,000.
This applies even if the omission was due to oversight or lack of clarity. It is considered a moderate offence but still attracts financial consequences.
Penalty for Misreporting
Misreporting refers to intentional acts such as hiding income, falsifying documents, or knowingly submitting incorrect returns. In such cases, Section 270A enforces a penalty of 200% of the tax due. Suppose a taxpayer fabricates expenses to avoid tax on INR 10 lakh in crypto gains.
With INR 3 lakh as tax liability, the penalty imposed would be INR 6 lakh. Misreporting is treated as a serious offence, often drawing the highest scrutiny and follow-up investigation by the tax department.
TDS Violations
If a taxpayer fails to deduct or deposit TDS when required, it triggers separate penalties. Section 271C imposes a monetary penalty equal to the amount of TDS not deducted. Section 276B adds criminal consequences for failure to deposit deducted TDS, including imprisonment between 3 months to 7 years, plus a fine.
For example, if INR 15,000 in TDS is deducted but not deposited, prosecution under Section 276B can be initiated, even if the tax amount appears small.
Crypto Seizure During Raids
If the tax department finds undisclosed VDAs during a raid or investigation, Section 158B applies. The unreported assets are taxed at a flat 60%, with no deductions. Additionally, a 50% penalty can be added to the taxed amount.
For instance, if crypto assets worth INR 5 lakh are found, the taxpayer may owe INR 3 lakh as tax and INR 1.5 lakh as penalty, totalling INR 4.5 lakh. This provision treats unreported crypto at par with black money or unaccounted gold.
Total Financial Impact of Non-Compliance
Even a single instance of non-compliance can snowball into a heavy financial burden. In some cases, the penalties and taxes together may exceed the original value of the crypto gains. Beyond the flat taxes and fines, there is also the risk of asset seizure and criminal prosecution.
With increasing scrutiny and cross-border cooperation, taxpayers cannot assume anonymity as a defence. Choosing not to report crypto income could wipe out earnings and create long-term legal complications.
How to Voluntarily Rectify Past Non-Reporting (Via ITR-U)?
Missed disclosing crypto income earlier? The ITR-U form gives you a chance to correct past mistakes legally and avoid harsher penalties through voluntary disclosure and timely action.
Step 1: Check Eligibility to File ITR-U
You can file ITR-U if you missed reporting income in your original, belated, or revised return. The provision under Section 139(8A) of the Income Tax Act allows updated filing within 24 months from the end of the relevant assessment year. However, you cannot file ITR-U if an income tax proceeding has already started for that year or if a refund is being claimed.
Step 2: Collect Your Crypto Transaction Records
Before filing, compile complete details of your past crypto transactions. This includes trades from domestic and international exchanges, wallet-to-wallet transfers, staking or mining rewards, airdrops, and NFT earnings. Each transaction must be tagged by date, asset type, cost of acquisition, sale value, and net gain. Proper documentation strengthens the accuracy of your updated return.
Step 3: Recalculate the Correct Tax Owed
Once all crypto gains are consolidated, calculate the tax as per applicable rules. For instance, gains from crypto sales attract a 30% flat tax under Section 115BBH. Any shortfall in tax previously paid will now become your revised liability. You must also calculate additional tax payable as a penalty for updating your return.
Step 4: File the ITR-U Along With Schedule VDA
Log in to the Income Tax e-filing portal, select the correct assessment year, and choose the ‘Updated Return’ option. State the reason for updating (e.g., omitted income) and upload the ITR-U with Schedule VDA filled in. Schedule VDA is mandatory for crypto reporting and ensures that all gains are declared asset-wise and date-wise.
Step 5: Pay the Tax and Additional Penalty
After submission, you must pay the outstanding tax amount plus an additional 25% or 50% penalty. The penalty rate depends on how early the ITR-U is filed within the 24-month window. If filed within the first 12 months, a 25% penalty applies. For 13 to 24 months, it increases to 50%.
How Can KoinX Help With Past Non-Compliance?
Missing out on reporting your crypto gains from earlier years can lead to serious tax trouble. With growing scrutiny from the Income Tax Department, even a small mistake can snowball into penalties, notices, or audits.
KoinX takes the stress out of this situation by offering a complete solution to identify unreported crypto activity, calculate past tax liabilities, and generate all ITR-ready reports in one place. It helps you rectify errors before they attract legal consequences, saving both time and money.
Auto-Syncs Data From All Your Wallets and Exchanges
KoinX connects with 800+ platforms, including Indian and international exchanges, and pulls in every trade, transfer, and reward you have earned. Whether your assets were on CoinDCX, Binance, or Metamask, KoinX syncs everything in a few minutes and builds your entire crypto history without manual data entry.
Detects All Unreported Crypto Transactions From Past Years
Once your data is imported, KoinX automatically highlights transactions that were not disclosed in past ITR filings. It categorises them by financial year, asset type, and income source (trading, staking, airdrops, etc.), allowing you to spot what was missed and how much tax still remains unpaid.
Generates ITR-Compatible Tax Reports With Schedule VDA
KoinX prepares updated capital gains reports based on Indian tax rules under Section 115BBH. It breaks down the buy and sell values, net gains, and dates, making it easy to fill Schedule VDA. These reports are in formats directly accepted by the Income Tax Department, reducing your chances of error.
Simplifies the Filing Process for ITR-U
Instead of spending days tracking each transaction and calculating your liabilities manually, you can use KoinX to generate everything needed for ITR-U. It helps you file accurately and confidently while reducing the risk of further penalties or tax scrutiny in the future.
Missed past crypto income? Avoid penalties before it’s too late. Use KoinX today to clean up your records and file your ITR-U accurately in minutes.
Conclusion
Tax rules for crypto in India are no longer vague. With the government tightening enforcement and introducing steep penalties for non-disclosure, ignoring past crypto income is a risk few can afford. Whether it’s a missed gain from 2021 or an airdrop from a foreign wallet, every unreported transaction can now be flagged, tracked, and taxed.
Fortunately, you still have a window to come clean. Filing an Updated Return (ITR-U) not only helps you fix old reporting errors but also prevents harsher penalties later. KoinX makes this process faster and easier by helping you locate every unreported transaction, calculate the right taxes, and generate the exact reports needed for ITR-U filing. If you’ve missed reporting your crypto in the past, the time to act is right now by getting help from KoinX, before the next notice lands in your inbox.
Frequently Asked Questions
Can I Still File a Return for Missed Crypto Income?
Yes, if you missed reporting crypto income in a previous year, you can file an Updated Return (ITR-U). This option is available for up to 2 years from the end of the relevant assessment year. Filing it voluntarily before a notice is issued can reduce the risk of severe penalties or prosecution.
Will I Face Jail Time for Not Reporting Crypto Gains?
Jail time is applicable only in extreme cases. For instance, if you deduct TDS but do not deposit it with the government, Section 276B allows for imprisonment of 3 months to 7 years. However, simple under-reporting or omissions usually lead to financial penalties, not imprisonment, especially if corrected early.
How Can I Check If I Missed Reporting Crypto Income?
You can review your AIS (Annual Information Statement) and TIS on the income tax portal. These reports show your transactions reported by exchanges and banks. You can also use crypto tax software like KoinX to auto-fetch all exchange trades and compare them against your ITR to detect any gaps.
Is Crypto Gifting Also Taxable If Not Reported?
Yes, crypto gifts are taxable if the total value exceeds INR 50,000 and the giver is not a close relative. If you fail to report such gifts in your ITR, the value may be treated as undisclosed income. This could trigger both standard tax and penalty provisions under Sections 56 and 270A.
