Crypto Sales, 1% TDS and ITR Filing: A FY 2025-26 Compliance Guide for Indian Investors

A crypto tax credit is not the same as your final tax bill

Crypto investors often discover a compliance problem only when they start preparing their return: the exchange has deducted tax, but the investor’s trade history, wallet transfers and bank records do not reconcile. A reported update on the Income-tax Act, 2025 says the framework largely retains the existing 30% tax treatment and 1% tax deducted at source (TDS) for virtual digital assets (VDAs), while introducing a reporting framework that makes detailed transaction and wallet records more important. For an investor filing AY 2026-27, the key practical task is to identify which rules apply to the relevant financial year and report the actual transactions—not to assume that TDS has settled the liability.

The relevant return for AY 2026-27 covers FY 2025-26. The new Act’s provisions and changed section references should not be applied retrospectively just because an article discusses them. Taxpayers should confirm the law applicable to the transaction period and the commencement of any new provisions. Keep a year-by-year record and use the applicable return form and schedules for the relevant year.

Why exchange statements alone may not tell the whole story

An exchange statement can show trades on that platform, but it may not capture a transfer to a private wallet, a transaction on another exchange, a token swap or the full rupee value and acquisition cost of every disposal. This is where investors can make avoidable errors: treating a wallet transfer between accounts they control as a sale, counting the same transaction twice, overlooking a trade on a second platform, or reporting only withdrawals to a bank. A transfer may not itself be a taxable transfer, but the investor must preserve evidence of ownership and transaction continuity to distinguish it from a disposal.

Build a transaction ledger that records the date, asset, quantity, rupee value, acquisition cost, sale or transfer proceeds, platform or wallet, fees and transaction identifier. Keep exchange contract notes and downloadable reports, bank statements, wallet addresses and transaction hashes, as well as records of deposits and withdrawals. If a platform provides a tax report, use it as a reconciliation aid rather than treating it as a substitute for source data. Check that the ledger agrees with the exchange’s annual statement and any TDS information reflected in Form 26AS or AIS.

Understand the reported 30% tax treatment and limits on deductions

The source update describes the VDA tax treatment as largely retaining a 30% rate and 1% TDS. Under the established VDA framework applicable to the relevant periods, the special tax computation is restrictive: the acquisition cost is generally the key cost permitted in calculating income from a transfer, and ordinary trading losses should not be assumed to offset VDA income or be carried forward under the same rules as other losses. The exact calculation must be checked against the law applicable for the year, transaction type and current official guidance. Do not assume that exchange charges, internet costs or every expense can be deducted merely because they were incurred while trading.

For example, an investor buys a token for one amount and later sells it for a higher amount. The investor should establish the acquisition cost and transfer value in rupees and use the applicable VDA reporting and tax rules. If the investor instead sells at a loss, that loss does not automatically reduce salary, interest income or gains from another asset. A mistaken netting of unrelated gains and losses can create an incorrect return, even when the total cash withdrawn from the exchange looks small.

The 30% figure is not necessarily the entire amount payable. Applicable surcharge and cess may affect the final computation, and other income in the return can affect the total tax position. TDS already deducted is a tax credit, subject to verification and claim in the return; it is not proof that the final tax is fully paid.

How 1% TDS can create a mismatch

Under the existing VDA TDS framework, a deduction may be made on the transfer transaction even when the investor later has a small gain, no gain or a loss. The deduction can therefore be materially different from the final tax liability. Investors should reconcile the TDS shown by the exchange with Form 26AS, AIS and the exchange’s transaction report. If a credit is missing or appears under the wrong PAN, contact the deductor or exchange and retain the response. Do not claim a credit merely because an exchange dashboard displays it if the official tax-credit record does not support it; investigate the difference and keep evidence.

Consider an investor who sells several tokens and sees TDS deductions on the exchange, but has also transferred some assets between two wallets. If the investor reports every transfer as a sale and claims the TDS as if it relates to those transfers, both income and credit may be misstated. Conversely, an investor who reports only the taxable profit but fails to claim correctly reflected TDS may overpay. Reconcile trade by trade and check the annual aggregate against the official tax records.

Pick the ITR form based on the whole income profile

A VDA transaction does not, by itself, answer every ITR-form question. An investor with salary, interest and relevant investment disposals but no business income may need to evaluate ITR-2 eligibility. A taxpayer with business or professional income, including a trading activity that is properly characterised as business on its facts, may need ITR-3. The applicable ITR form and schedule can change with other income, residence status, foreign assets and the nature of the activity. Do not use ITR-1 simply because the taxpayer is salaried if the return’s eligibility conditions are not met or the required VDA reporting cannot be made in that form.

Investors with overseas exchanges or foreign wallets should separately review foreign income and asset disclosure requirements based on their residential status and the nature of the holdings. A wallet address alone does not establish whether a foreign-asset reporting obligation applies, but an overseas exchange account, foreign investment or income can raise questions that need a careful review. Avoid leaving foreign holdings out solely because they are not shown in the Indian exchange’s annual report.

Recordkeeping steps for the FY 2025-26 return

Start the return preparation by downloading records before platforms change their report formats or access. Keep records in a secure, readable folder and retain the original files alongside your reconciliation. A practical checklist is:

• Export trade-level data from each exchange used during FY 2025-26, including fees and rupee values.
• List wallet-to-wallet and exchange-to-wallet transfers separately from disposals, and preserve transaction hashes and proof of wallet control.
• Reconcile bank deposits and withdrawals with exchange funding records so that movements of money are not mistaken for taxable income.
• Match TDS credits against Form 26AS and AIS and seek correction from the deductor if a reported credit is missing or incorrect.
• Calculate each VDA transfer under the rule applicable to that year and avoid unsupported loss set-offs or expense deductions.
• Review the selected ITR form, VDA schedule, residence status and foreign-asset disclosures before submission.

For AY 2026-27, 31 July 2026 is the filing last date without late fee for non-audit ITR-1 and ITR-2 cases unless officially extended. For applicable non-audit ITR-3 and ITR-4 cases, the due date is 31 August 2026 unless officially extended. A taxpayer should verify the Income Tax Department’s latest announcement before filing because due dates can be extended. If the investor’s return is subject to audit or another special deadline, the applicable statutory timetable must be checked separately.

What the new reporting emphasis means for investors

The reported update highlights more detailed VDA transaction and wallet records. For a careful investor, this is a reason to improve reconciliation now, not wait until a notice or return mismatch occurs. A complete ledger helps explain differences between platform reports, bank activity, AIS and the figures disclosed in the return. It can also distinguish a transfer between wallets from a sale and explain why the cash withdrawal amount does not equal the taxable result.

Where records have gaps, do not invent a cost or ignore a transaction. Retrieve exchange data, blockchain transaction information and bank evidence, then document any assumptions and unresolved items. If an exchange has closed or a report is unavailable, keep evidence of attempts to obtain it and reconstruct only from reliable source records. A return with an unexplained number can be harder to defend than a transparent computation that identifies and supports its methodology.

FAQs: crypto TDS and ITR filing

If an exchange deducted 1% TDS, is my crypto tax fully paid? No. TDS is a credit to reconcile and claim where supported; it does not automatically settle the final VDA tax, surcharge or cess.

Do wallet transfers between my own wallets count as sales? A transfer between wallets you control is not automatically a disposal, but you should retain evidence of ownership, transaction hashes and continuity of the asset. A trade, swap or transfer to another person requires separate analysis.

Can a crypto loss reduce my salary income for FY 2025-26? Do not assume so. VDA losses are subject to restrictive rules and should not be set off against salary or other income without confirming the applicable law.

Can a salaried investor use ITR-1 after selling crypto? Do not assume ITR-1 is available. Review the form’s eligibility and disclosure requirements for the relevant year; many taxpayers with VDA transfers need to assess ITR-2 or another form based on their complete income profile.

Should I apply the Income-tax Act, 2025 section numbers to FY 2025-26? Not automatically. Confirm which law and provisions apply to the transaction period and when any new provisions commence. Keep the FY 2025-26 computation separate from later-year rules.

What are the AY 2026-27 filing dates for a crypto investor? For non-audit ITR-1 and ITR-2 cases, the last date without late fee is 31 July 2026 unless officially extended. Applicable non-audit ITR-3 and ITR-4 cases have a 31 August 2026 due date unless officially extended. Check the latest department announcement.

Conclusion: reconcile first, file second

Crypto compliance is not finished when an exchange deducts TDS or issues an annual statement. The investor needs a transaction-level record, a supportable rupee computation, a correct TDS reconciliation and an ITR form suited to the full income profile. Treat the reported 30% tax and 1% TDS framework as a prompt to verify the rules for the relevant year, especially as provisions and section references change. Before filing AY 2026-27, reconcile exchange and wallet activity with bank records, AIS and Form 26AS, then verify the deadline and latest official guidance.