Introduction
Budget 2026 proposes an important compliance-side change for crypto-assets. The proposal does not create a new tax on cryptocurrency; rather, it strengthens the Government's information-reporting framework by introducing a separate penalty for failure to furnish, or for furnishing inaccurate, crypto-transaction information under the new Income-tax Act, 2025. The legal foundation remains section 509, which deals with the obligation to furnish information on crypto-asset transactions, while the penalty is being introduced through substituted section 446. The Budget Speech specifically states that the proposal is meant to ensure compliance with section 509 and to deter non-furnishing and inaccurate furnishing of crypto-related information.
This distinction is important. The amendment is not directly drafted as a separate filing obligation on every ordinary person who merely trades in cryptocurrency. On its face, the reporting obligation under section 509 is placed on the “prescribed reporting entity”. Yet, although the legal burden is structured around reporting entities, the practical impact is likely to be felt by individual assessees as well, because stronger reporting by exchanges, platforms and intermediaries will naturally lead to the Government having more detailed, more accurate and more structured information regarding crypto transactions.
Position before the Budget 2026 proposal
Even before this amendment, cryptocurrency was already within the tax net. The law taxed income from transfer of virtual digital assets under section 115BBH, and transaction-level tax deduction was already built into the system through section 194S. In addition, the law had already moved toward a separate information-reporting architecture for crypto-assets by requiring a prescribed reporting entity to furnish transaction information in a statement, with the details of period, time, form, manner, authority, registration and due diligence to be prescribed by rules.
However, although the reporting structure existed, there was no separately quantified crypto-specific penalty for failure to furnish the statement or for furnishing inaccurate information and not correcting it. The 2026 Memorandum explains that the earlier section 446 of the Income-tax Act, 2025 dealt with a different subject, namely failure to get accounts audited, and that this section is now being repurposed for crypto-reporting failures.
What exactly has been proposed now
Clause 87 of the Finance Bill, 2026 proposes to substitute section 446 and create a new penalty provision titled “Penalty for failure to furnish information or for furnishing inaccurate information on transaction of crypto-asset.” Under the proposed provision, if a person required to furnish a statement under section 509(1) fails to furnish it within the prescribed time, the prescribed authority may impose a penalty of Rs 200 per day for the period during which the default continues. Further, if such person furnishes inaccurate information and fails to remove the inaccuracy as contemplated by section 509(4), or fails to comply with the due-diligence requirement under section 509(5), a penalty of Rs 50,000 may be imposed.
Thus, the proposal can be stated simply:
Earlier: reporting obligation existed, but there was no dedicated quantified crypto-reporting penalty.
Now proposed: Rs 200 per day for non-furnishing and Rs 50,000 for inaccurate information not corrected, or for due-diligence failure.
What section 509 actually requires
Section 509 is the substantive compliance section. As explained in the Memorandum, it requires a prescribed reporting entity to furnish information in respect of crypto-asset transactions in a statement, for the prescribed period, within the prescribed time, in the prescribed form and manner, and to the prescribed authority. It also contemplates a correction framework: where the statement is defective, the defect may be pointed out and time may be allowed for rectification; where inaccurate information is discovered later, it is to be corrected in the prescribed manner; and the rules may prescribe registration, nature of information, maintenance of records and due diligence to identify the crypto user or owner.
This is why the Rs 50,000 penalty is not triggered merely because any error exists. The statutory scheme contemplates a rectification opportunity, and the penalty is linked to failure to remove the inaccuracy or failure of due diligence.
Who is directly covered by this amendment
On the present text, the provision is not drafted as a direct statement-filing obligation on every ordinary retail crypto trader. The obligation is on a prescribed reporting entity, not on every person who buys or sells crypto for his own account. The language regarding registration, maintenance of information and due diligence to identify the user or owner strongly suggests that the intended target is the reporting layer of the crypto ecosystem—for example, exchanges, trading platforms, brokers, custodians, wallet operators or other notified intermediaries.
Therefore, the better reading is that an ordinary individual continues to remain governed by the usual crypto-tax provisions—such as taxability of gains and TDS-related consequences—but is not automatically required to file a separate section 509 statement, unless he himself falls within a class later notified as a reporting entity.
Why does this amendment indirectly affect individuals also
This is the most important practical point for the assessee.
Although the amendment is structured around reporting entities and not directly around retail traders, it will indirectly affect individuals in a significant way. Once exchanges, platforms, brokers and other reporting entities are placed under a specific penalty regime for non-filing and inaccurate filing, their compliance burden will increase. They will be compelled to maintain better transaction records, perform stronger user identification and due diligence, and furnish more accurate transaction-level information to the Department. As a result, the Government is likely to have more complete, more accurate and more usable third-party information regarding crypto transactions undertaken by assessees. That is the natural practical effect of this amendment.
For this reason, even though the statutory reporting obligation is not directly cast on every individual trader, the ordinary assessee must now be much more conscious while filing the ITR. A person who has traded in cryptocurrency should proceed on the basis that the Department may already have, or may increasingly receive, transaction-linked information from the reporting chain. Therefore, incomplete disclosure, under-reporting, mismatch in sale consideration, or inconsistent reporting in Schedule VDA may become easier for the Department to identify. This is precisely why the amendment, though not directly addressed to the retail trader, still has a real indirect impact on him.
What the assessee should now do while filing the return
In view of this tighter reporting environment, an assessee dealing in cryptocurrency should be proactive and should reconcile the following before filing the return:
- exchange-wise trade history;
- wallet and transfer records;
- TDS under section 194S reflected in Form 26AS;
- figures disclosed in Schedule VDA; and
- any other information reflected or populated on the Income-tax portal.
This assumes special importance because the Department's defective-return FAQ already states that the sale consideration disclosed in Schedule VDA should not be less than the gross receipts reflected against TDS under section 194S in Form 26AS, failing which consequences under section 139(9) may arise.
Accordingly, the practical compliance message is clear: the assessee should not assume that crypto non-disclosure or partial disclosure will remain unnoticed. The safer and more professional course is to make full and correct disclosure of all VDA transactions, reconcile the return data with available portal data, and rectify any mismatch in time.
Effective date and present status
The Budget materials state that this amendment is proposed to take effect from 1 April 2026. At the same time, the statutory materials indicate that the detailed operational aspects such as the exact class of reporting entities, prescribed form, reporting format, timing and utility are still to be laid down through rules. In other words, the law currently provides the framework, but some operational details remain to be prescribed.
Conclusion
The Budget 2026 amendment should be understood correctly. It is not a new tax on crypto, and it is not, on its face, a direct penalty provision for every individual trader. It is a reporting-entity penalty framework built around section 509. But its real-world impact goes beyond the reporting entity itself. As reporting by exchanges and intermediaries becomes stricter, the Government is likely to have more detailed and more accurate information regarding cryptocurrency trading by assessees. That is why individual taxpayers, though not directly targeted by the reporting obligation, must now become more careful, more transparent and more disciplined while filing the ITR and reconciling Schedule VDA with Form 26AS and other available records.
The author can also be reached at varunmukeshgupta96@gmail.com
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