1. Introduction

Begin with a high-level introduction about how cryptocurrency transactions—now legally classed as Virtual Digital Assets (VDAs)—are taxed in India, along with TDS (Tax Deducted at Source) obligations. Mention that this article will offer an actionable checklist, and integrate a flowchart to lay out the compliance steps visually.

2. Understanding the Legal Landscape

2.1 Virtual Digital Assets

Define VDAs as per Section 2(47A) of the Income-Tax Act—covering cryptocurrencies, NFTs, tokens, etc.

2.2 Tax Provisions on Crypto Gains

• Flat 30% tax under Section 115BBH applies to gains from disposal of VDAs (selling, swapping, spending), with no deductions allowed except cost of acquisition. Losses cannot be set off against other income or carried forward. .

2.3 TDS on Crypto Transactions

• From July 1, 2022, 1% TDS is levied on transfers of VDAs under Section 194S. This applies to both crypto-to-INR and crypto-to-crypto trades, regardless of profit or loss. 

2.4 Non-Compliant Behavior & Enforcement

• The I-T Department has begun issuing notices for misreported or undisclosed crypto gains—especially from arbitrage bots—under Section 115BBH. 

• Starting FY 2025-26, mandatory reporting via Schedule VDA and enhanced ITR disclosures will be enforced. 

3. Flowchart Breakdown (Visual Overview)

Visual Flow Chart (as shown above):

1. Transaction Occurs (crypto ↔ INR or crypto ↔ crypto)

2. 1% TDS Deduction

3. Payment & Recordkeeping

4. Submit TDS via Form 26QE

5. File ITR with details under Schedule VDA

6. Match TDS with Form 26AS / AIS

7. Address Mismatch or NUDGE

8. Maintain Records & Prepare for Mandatory Reporting

4. Detailed Checklist for TDS Filing (Crypto Payments)

A. Pre-Transaction Preparation

• Identify the type of transaction (fiat sale, token swap, payment, etc.)

• Confirm if 1% TDS applies (sell or swap, regardless of profit) 

B. At the Time of Transaction

• Deduct 1% TDS on gross value (not profit or gain) 

• For crypto-for-crypto trades, both parties are responsible for TDS, calculated on INR equivalent. 

C. TDS Remittance & Filing

• File Form 26QE within 30 days from the end of the month. .

• Pay TDS in INR. If collected in crypto, first convert it to INR. 

D. Income Tax Return (ITR) Filing

• Use appropriate ITR form (e.g., ITR-2) which supports capital gains and crypto income. 

• Report crypto transactions under Schedule VDA (starting FY 2025-26). Disclose any TDS already deducted.

E. Post-Filing Reconciliation

• Compare TDS with Form 26AS / Annual Information Statement (AIS). 

• Address any mismatches promptly—file an updated return if needed. 

F. Documentation

• Maintain records: timestamps, values (INR), TDS certificates, Form 26QE, and crypto exchange statements.

• If using platforms like CoinDCX, leverage tools that generate TDS summaries and reports. 

G. Penalties & Compliance Risks

• Non-deduction or late payment: liable for full TDS amount, plus interest and penalties. 

• Misreporting/carrying losses against profits or non-disclosure can incur penalties up to 200% of evaded tax and even imprisonment up to 7 years.  Window.

• Be prepared for potential "NUDGE" notices from the I-T department if records don’t match.

5. Summary Checklist Table