Filing ITR with crypto investments: Common reporting mistakes that could trigger tax scrutiny

If you have invested in cryptocurrencies during FY 2025-26, filing your ITR requires more than just checking whether TDS has been deducted.

As the Income Tax Department tracks your transactions, even small reporting mistakes can result in mismatches, delayed refunds or even tax notices. Here are some common mistakes crypto investors should avoid while filing their income tax returns.

Assuming 1% TDS is final tax

Many investors assume that once 1% TDS has been deducted on a crypto transaction, they have no further tax liability.

“TDS is only a tax collection mechanism that helps the Income Tax Department track transactions. Investors must still calculate their taxable gains, report them in the appropriate schedules and pay any additional tax liability after adjusting the TDS already deducted,” said Pranav Pagaria, SVP – Finance & Strategy, CoinDCX.

Not reporting all crypto transactions

Some taxpayers skip reporting crypto trades if the gains are small or if they have incurred losses.

“Every transfer of a virtual digital asset is reportable irrespective of the quantum of gains. Since domestic exchanges deduct TDS and report transactions, discrepancies between exchange records, Form 26AS, the Annual Information Statement (AIS) and the income tax return are increasingly easier to identify,” Pagaria explained.

Reporting crypto income under wrong schedule

Crypto income should be reported on the dedicated Schedule VDA instead of under capital gains or income from other sources.

“Investors should also ensure that crypto income is disclosed under the dedicated Schedule VDA, introduced specifically for virtual digital assets,” Pagaria said.

He added, “Reporting gains under capital gains or income from other sources instead of Schedule VDA can create inconsistencies when tax authorities reconcile return data with information available through exchanges and TDS filings.”

Applying regular capital gains rules to crypto

Many investors incorrectly apply the tax rules used for shares or mutual funds while reporting crypto gains.

“Income from the transfer of VDAs is taxed at a flat 30% under Section 115BBH, with no deduction allowed other than the cost of acquisition,” Pagaria said.

He added, “Trading fees, brokerage charges or other incidental expenses cannot be claimed as deductions.”

Pagaria further noted, “Investors also cannot set off losses from one crypto asset against gains from another, nor can such losses be carried forward.”

Not reconciling TDS before filing

Before filing, taxpayers should reconcile their records with Form 26AS and the Annual Information Statement.

Pagaria says, “The TDS deducted by exchanges should match the credit reflected in these statements. Any mismatch should be resolved before filing, as incorrect TDS claims may delay refunds or trigger follow-up queries from the tax department.”

He added, “Investors should retain transaction histories, trade confirmations, wallet transfer records and exchange-generated tax reports throughout the financial year rather than attempting to reconstruct them during the filing season.”