The rise of cryptocurrencies, NFTs, and other Virtual Digital Assets (VDAs) has changed the financial landscape in India. While digital assets open new opportunities for investors, they also bring complex tax challenges. The Income Tax Department has tightened monitoring by integrating digital asset transactions into AIS (Annual Information Statement) and Form 26AS, ensuring every crypto trade or NFT transfer is traceable.

This blog explores how digital assets are reported in AIS and Form 26AS, challenges faced by taxpayers, and best practices for seamless compliance.

Understanding AIS and Form 26AS

What is AIS?

The Annual Information Statement (AIS) is a comprehensive report issued by the Income Tax Department that captures a wide range of financial transactions of a taxpayer. Unlike Form 26AS (which primarily focused on TDS and taxes paid), AIS provides a 360-degree view of income and investments, including:

• Securities transactions (shares, mutual funds)

• Interest and dividend income

• High-value transactions reported by banks

• Crypto trades and VDA transactions (reported by exchanges)

What is Form 26AS?

Form 26AS is a tax credit statement that reflects:

• TDS (Tax Deducted at Source)

• TCS (Tax Collected at Source)

• Advance tax and self-assessment tax paid

• Refunds issued by the IT Department

For digital asset investors, Form 26AS highlights TDS deducted at 1% under Section 194S on eligible crypto trades.

Digital Asset Reporting in AIS

The Income Tax Department has made AIS a compliance weapon to capture digital transactions. Here’s how it works:

1. Exchange Reporting
   Crypto exchanges registered in India are required to report transactions of their users. If you bought or sold Bitcoin, Ethereum, or any NFT, the details are uploaded to AIS.

2. Beneficial Interest Tracking
   Even if you hold assets through someone else’s account (beneficial ownership), AIS is designed to reflect such interests.

3. Foreign Exchange Usage
   If you invest via international platforms, AIS may not capture all trades. However, the bank or payment gateway transfers can still appear in AIS, creating a cross-link.

Digital Asset Reporting in Form 26AS

While AIS is wide in scope, Form 26AS specifically shows TDS credits.

• From July 1, 2022, every crypto trade above the threshold is subject to 1% TDS u/s 194S.

• The TDS deducted is deposited against your PAN and reflected in Form 26AS.

• During return filing, you can claim this TDS as credit against your tax liability.

Example:
If you sold Bitcoin worth ₹5 lakh, the exchange deducts ₹5,000 (1%). This will appear in Form 26AS as TDS credit.

Why AIS & Form 26AS Matter for Digital Asset Tax

1. Preventing Tax Evasion
   The government wants to ensure no crypto income slips under the radar. AIS makes non-reporting nearly impossible.

2. Matching Income with TDS
   Investors can cross-check if all TDS entries in Form 26AS match with their crypto gains.

3. Reducing Litigation
   Transparent reporting helps avoid scrutiny notices, penalties, and litigation from mismatched returns.

Challenges Faced by Taxpayers

Despite improvements, digital asset taxpayers face hurdles:

• Data Mismatch – AIS may show incomplete or duplicate transactions.

• Multiple Exchange Use – Investors using Indian + foreign platforms find it difficult to consolidate.

• Price Variation – Crypto values differ across exchanges; AIS may report one value while you use another.

• NFT Complexity – Many NFTs are bought in foreign wallets, leading to missing AIS entries.

• Understanding Section 115BBH – Flat 30% tax on VDAs applies without deductions (other than cost of acquisition), which confuses taxpayers.

Step-by-Step Guide to Digital Asset Tax Reporting

1. Download AIS and Form 26AS from the Income Tax portal before filing.

2. Check TDS Entries – Verify if TDS deducted by exchanges matches with your ledger.

3. Reconcile Trades – Match all trades (including losses) with AIS data.

4. Report under Section 115BBH – Pay 30% tax on gains from digital assets.

5. Claim TDS Credit – Reduce your final tax liability by claiming TDS shown in 26AS.

6. File Form 67 (if foreign tax credit is involved for overseas digital income).

7. Keep Logs – Maintain Excel/CSV records of all trades for audit readiness.

Best Practices for Crypto & NFT Tax Compliance

• Early Reconciliation: Don’t wait until the last moment; reconcile AIS and 26AS quarterly.

• Correct Errors: Use AIS feedback option to fix mismatches immediately.

• Single Exchange Strategy: Limit trades to fewer exchanges for easy reporting.

• Track International Accounts: Even if not in AIS, you must self-report foreign wallets.

• Professional Consultation: Work with tax experts like TAXAJ to ensure Section 115BBH compliance.
  

The Future of Digital Asset Taxation in India

With increasing global adoption of digital assets, India is likely to:

• Integrate foreign exchange platforms with AIS

• Introduce AI-based compliance monitoring

• Issue clarifications on staking, airdrops, and NFTs

• Possibly move towards a balanced tax regime in future Budgets

For now, AIS and 26AS remain the backbone of VDA compliance.

Final Thoughts

Digital asset taxation in India is no longer in a grey area. With AIS and Form 26AS capturing every trade and deduction, investors must stay compliant. Errors, mismatches, or omissions can attract penalties and scrutiny.

At TAXAJ, we specialize in guiding investors, startups, and traders in handling crypto taxation, NFT reporting, and digital asset compliance. From AIS reconciliation to filing under Section 115BBH, our experts ensure accurate and stress-free filing.