In the Union Budget 2026, the Indian government introduced a specific penalty framework to enforce the reporting of Virtual Digital Assets (VDAs). These provisions, which amend the Income-tax Act, will take effect on April 1, 2026.
The penalties are primarily aimed at ensuring accountability among "Reporting Entities" such as exchanges, wallet providers, and intermediaries, but they also have direct implications for individual taxpayers.
| Penalty Type | Applicable Scenario | Penalty Amount | Effective Date |
| Delay in Filing | Failure to furnish the required statement of crypto-asset transactions within the prescribed time limit. | Rs 200 per day of continuing failure | April 1, 2026 |
| Inaccurate Reporting | Furnishing inaccurate information in the statement and failing to correct the inaccuracy as required. | Flat Rs 50,000 fine | April 1, 2026 |
Who Is Affected and Why Now?
The new penalty provisions target "prescribed reporting entities," primarily crypto exchanges, marketplaces, and other intermediaries mandated to file transaction statements under Section 509 of the Income-tax Act, 2025. While retail investors are not subject to direct fines, they may face indirect consequences as platforms tighten data collection and reporting protocols to avoid penalties.
This stricter enforcement comes amid rising concerns over compliance. Tax authorities have already identified undisclosed virtual digital assets (VDAs) worth approximately ₹888.82 crore and have issued over 44,000 communications to taxpayers flagged for potential non-disclosure. The initiative is designed to align crypto-asset reporting with established financial standards and serve as a deterrent against non-compliance.
While introducing these new penalties, the government has kept the broader crypto tax framework unchanged. The following provisions remain in effect:
- Tax on Gains: A flat 30% tax applies to any income arising from the transfer of virtual digital assets.
- Tax Deducted at Source (TDS): A 1% TDS is levied on payments for the transfer of VDAs that exceed a specified threshold.
- Set-off of Losses: Taxpayers are not permitted to offset losses from the transfer of one VDA against income from another.
Key Compliance Details
Reporting Entity Obligations
Crypto exchanges and intermediaries are now legally required to share detailed transaction statements with the Income Tax Department. As a result, the government will have pre-filled records of your:
- Buy and sell transactions
- Crypto-to-crypto trades (which are taxable in India)
- Transfers from exchanges to private wallets
The "Inaccuracy" Trap
The introduction of a Rs 50,000 penalty for furnishing inaccurate information marks a significant shift. If an exchange reports a transaction that you omit from your Income Tax Return (ITR), or if you provide inconsistent details to the exchange such as an incorrect PAN or residency status, you could be flagged for submitting inaccurate particulars.
TDS and Traceability
The 1% TDS continues to serve as the primary tracking mechanism. Starting in 2026, the tax department is expected to deploy AI-driven systems to compare TDS data deposited by exchanges against the income individuals declare in their tax returns.
Critical Reminder for 2026
While the penalties above target the filing of the statement, the underlying tax rules remain some of the strictest in the world:
- 30% Flat Tax on all VDA gains.
- No Setting Off Losses: You cannot use a loss in one coin (e.g., Bitcoin) to reduce the tax owed on a profit in another (e.g., Ethereum).
- No Deductions: Only the "cost of acquisition" can be deducted; gas fees, platform fees, and mining electricity costs are not deductible.
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