ITR 2027: Invested in Bitcoin or Crypto? Here’s Whether to File ITR-2 or ITR-3 for FY 2026-27

Quick Summary

• Crypto and NFTs are taxed as Virtual Digital Assets under Section 2(47A) of the Income-tax Act, 1961, introduced by the Finance Act 2022.
• Income from transfer of a VDA is taxed at a flat 30% under Section 115BBH, plus applicable surcharge and 4% health and education cess.
• No deduction is allowed except the cost of acquisition, and losses from VDA cannot be set off against any other income or carried forward.
• 1% TDS applies on transfer consideration under Section 194S, subject to applicable thresholds.
• Disclosure is made transaction-wise in Schedule VDA of the ITR — netting of gains and losses across different VDAs is not permitted.

How is cryptocurrency taxed for ITR filing for AY 2027-28?

In India, gains from Bitcoin, Ethereum, NFTs and similar blockchain-based assets are taxed under the special VDA regime introduced by the Finance Act 2022. Under Section 115BBH of the Income-tax Act, 1961, any income from the transfer of a Virtual Digital Asset is taxed at a flat 30%, regardless of your income slab or holding period. This means the usual distinction between short-term and long-term capital gains does not apply to crypto.

Surcharge and health and education cess at 4% are levied as applicable, so the effective tax rate can go higher depending on your total income. Crucially, Section 115BBH prohibits any deduction other than the cost of acquisition — no brokerage, no exchange fees, no staking expenses. Losses from one VDA cannot be set off against gains from another VDA, and no loss can be carried forward to future years.

If you received crypto as a gift, the fair market value exceeding ₹50,000 is taxable under Section 56(2)(x) of the Income-tax Act, 1961 as “Income from Other Sources”. For airdrops or mining rewards, the fair market value is generally taxable under basic general asset taxation frameworks as “Income from Other Sources” or “Business Income” at applicable slab rates, not under the flat 30% VDA transaction track.

Should you file ITR-2 or ITR-3 for crypto gains?

The choice depends on whether your crypto activity is an investment or a business. For an individual or HUF who buys and sells crypto on exchanges without running a systematic trading operation, ITR-2 is the appropriate form. You report each transaction in Schedule VDA under the head “Capital Gains,” and the income is charged at 30% under Section 115BBH.

If your crypto activity crosses into business territory — meaning you maintain books of account, have trading infrastructure, significant turnover, and treat it as a commercial operation — then ITR-3 is the correct form. In ITR-3, Schedule VDA entries can flow to either “Business income” or “Capital Gain” depending on the head you select, but the 30% rate under Section 115BBH applies either way.

ITR-1 (Sahaj) and ITR-4 (Sugam) are not suitable for VDA income. The substituted ITR forms notified by CBDT for AY 2027-28 do not accommodate Schedule VDA in ITR-1 or ITR-4. Filing in the wrong form can trigger a defective return notice under Section 139(9).

How do you report each crypto transaction in Schedule VDA?

Schedule VDA requires transaction-wise disclosure — you cannot simply enter a net gain figure. For each VDA transfer, you must report the type of asset, date of acquisition, date of transfer, sale consideration, cost of acquisition, and the computed income. The income column is calculated as sale consideration minus cost, and only positive incomes are totalled under the chosen head.

This granular reporting exists because Section 115BBH does not allow set-off of losses from one VDA against profits from another. Each asset class must be reported independently. You must also reconcile your reported sale consideration with the gross receipts visible in your Form 26AS and AIS — any mismatch can trigger a defective return notice.

Additionally, if you hold crypto on foreign exchanges or wallets, the holdings must be disclosed in Schedule FA of your ITR. Non-reporting of foreign assets can attract significant penalties under the Income-tax Act, 1961.

What are the TDS rules under Section 194S for crypto transfers?

Under Section 194S of the Income-tax Act, 1961, introduced by the Finance Act 2022, a 1% TDS applies on the consideration paid for transfer of a Virtual Digital Asset to a resident. The obligation is on the buyer or the person responsible for paying the consideration. The TDS must be deducted and deposited with the government, and this applies even where consideration is paid in kind or partly in kind — if the cash portion is insufficient to cover the TDS liability, tax must be ensured before the payment or transfer is released.

The threshold for TDS applicability depends on the category of the person, as per the limits prescribed under Section 194S. For specified persons — individuals or HUFs whose turnover in business does not exceed the applicable threshold under Section 44AB (₹1 crore for business) or whose income from profession does not exceed the applicable threshold under Section 44AB (₹50 lakh for specified professions), or persons with no business income — the threshold is ₹50,000 per financial year. For all other deductors, the threshold is ₹10,000 per financial year. If the aggregate consideration exceeds the applicable threshold, TDS at 1% must be deducted on the transaction.

It is critical to understand that TDS under Section 194S is a tracking and collection mechanism — it does not replace your obligation to correctly disclose the sale consideration, dates, and income in Schedule VDA. The portal’s defective-return FAQ confirms that if the sale consideration reported in Schedule VDA is less than the gross receipts visible in Form 26AS, Section 139(9) defective-return consequences may arise. Always reconcile your AIS and Form 26AS before filing.

How do ITR-2 and ITR-3 handle VDA income differently?

The treatment of VDA income in ITR-2 and ITR-3 differs primarily in the head of income under which it is reported, though the tax rate remains identical. The table below summarises the practical differences:

In both forms, the substituted ITR forms notified by CBDT for AY 2027-28 separately capture “Capital gains on transfer of virtual digital asset taxable at the rate of 30%” under Section 115BBH. If you are an individual investor with no other business income, ITR-2 is the cleaner and more appropriate route.

Worked example: Tax on Bitcoin sale reported in ITR-2

Consider an individual investor who bought Bitcoin for ₹5,00,000 in October 2026 and sold it for ₹9,50,000 in February 2027. Under Section 115BBH, the income from transfer is computed as sale consideration minus cost of acquisition — that is, ₹9,50,000 minus ₹5,00,000, giving a taxable VDA income of ₹4,50,000. No other deduction is permitted. Tax at 30% on ₹4,50,000 comes to ₹1,35,000. If the investor’s total income exceeds ₹50 lakh (attracting 10% surcharge), surcharge at 10% on ₹1,35,000 adds ₹13,500, and health and education cess at 4% on ₹1,48,500 adds ₹5,940 — bringing the total tax outflow to approximately ₹1,54,440. This must be reported transaction-wise in Schedule VDA of ITR-2, and advance tax or self-assessment tax should be paid on time to avoid interest.

What happens if you file the wrong ITR form for crypto gains?

Filing VDA income in ITR-1 or ITR-4 when you are required to file ITR-2 or ITR-3 renders the return defective under Section 139(9) of the Income-tax Act, 1961. The ITR forms for AY 2027-28, notified by the CBDT, do not include Schedule VDA in ITR-1 or ITR-4. If you receive a defective return notice, you must file a revised return in the correct form within the time allowed under Section 139(9), failing which the return is treated as invalid. This can lead to loss of carry-forward demands and penalty proceedings.

What documents do you need before filing ITR-2 or ITR-3 for crypto gains?

Before you open the e-filing portal at www.incometax.gov.in, gather these documents in a folder — the ITR utility will ask for each one, and missing data is the most common reason returns get flagged as defective under Section 139(9).

Transaction-level records from your exchange. Most Indian exchanges (CoinDCX, WazirX, ZebPay) and foreign exchanges (Binance, Kraken, Coinbase) let you download a CSV or PDF statement of all trades for the financial year. You need every buy and sell — date, quantity, price in INR at the time of the trade, and any fees charged. If you used multiple exchanges, download statements from each one. The portal utility for Schedule VDA requires you to enter every transfer individually, so a consolidated spreadsheet will not work.

Form 26AS and AIS from the TRACES and e-filing portals. These statements show the TDS under Section 194S that has already been deposited against your PAN by the buyer or the exchange. Cross-check the gross sale consideration visible in AIS against the figures you enter in Schedule VDA — the defective-return FAQ on the portal confirms that if your reported sale consideration is lower than the gross receipts in Form 26AS, the return may be treated as defective under Section 139(9).

Bank statements for the financial year. You need these to verify that the rupee deposits into your account match the sale proceeds you are declaring. If you received consideration in crypto from a peer-to-peer trade, document the fair market value in INR on the date of receipt — this becomes your sale consideration for Schedule VDA.

Foreign exchange statements and wallet holdings, if applicable. If you held Bitcoin or any VDA on a foreign exchange (Binance, KuCoin, Coinbase) or in a non-custodial wallet (MetaMask, Ledger), you must disclose these holdings in Schedule FA under the relevant foreign asset category. The substituted ITR-2 form notified by CBDT for AY 2027-28 retains the expanded Schedule FA requiring disclosure of foreign crypto assets. Non-disclosure of foreign assets can attract significant penalties under the Income-tax Act, 1961.

Form 16, if you have salary income. Even though your crypto gains go into Schedule VDA, your total income including salary determines your applicable surcharge rate on the 30% VDA tax under Section 115BBH and the overall tax liability.

Yes. If you hold your Bitcoin or any Virtual Digital Asset (VDA) on an exchange incorporated outside India — such as Binance, Kraken, or Coinbase — the holdings constitute a “foreign asset” under the Income-tax Act, 1961. You must disclose them in Schedule FA (Foreign Assets) of your ITR, regardless of whether the exchange is active or dormant during the year. This includes the peak balance held during the financial year, not just the closing balance.

Non-reporting of foreign assets can attract severe consequences under the Income-tax Act, 1961. For Residents and Ordinarily Residents (ROR), this disclosure is mandatory. If you traded on a foreign exchange but did not declare the holding in Schedule FA, you risk a notice and potential penalty proceedings. The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 treats non-disclosure of foreign assets as a taxable foreign income event with significant penalties.

What penalty applies if you fail to report your crypto transactions?

The legal framework mandates precise and absolute transaction reporting across all crypto asset portfolios. Taxpayers must realize that failing to report VDA operations or trying to obscure transactions can trigger immense compliance exposures under existing Indian tax enforcement frameworks.

Filing a return in the wrong form — ITR-1 or ITR-4 instead of ITR-2 or ITR-3 — immediately triggers a defective return notice under Section 139(9) of the Income-tax Act, 1961. If not rectified within the 15-day statutory window, the return is treated as invalid (never filed), exposing the individual to hefty interest penalties under Section 234A and severe under-reporting adjustments under Section 270A, which can scale up to 200% of the tax sought to be evaded. Furthermore, discrepancies flagged by the automated matching system between Schedule VDA lines and 26AS data streams will generate immediate scrutiny assessments.

Is tax audit applicable if your crypto trading is treated as a business?

If your crypto activity is classified as a business and your turnover or gross receipts cross the applicable threshold under Section 44AB of the Income-tax Act, 1961, a tax audit is required. The general threshold is business turnover exceeding ₹1 crore (or ₹10 crore where not more than 5% of business transactions are in cash). The ITR-3 form for AY 2027-28, notified by the CBDT, captures audit-related details and the range of total sales or turnover. If a tax audit applies and you fail to get your accounts audited, the consequences include best-judgment assessment and potential penalty proceedings.

How should you handle advance tax and self-assessment tax on crypto gains?

Because the 30% VDA tax is not covered by TDS in most peer-to-peer or many exchange transactions — and because the TDS under Section 194S may be only a fraction of your total liability — you are required to pay advance tax on your VDA income. Under Section 208 of the Income-tax Act, 1961, if your tax liability in a financial year exceeds ₹10,000, advance tax is payable in instalments: 15% by 15 June, 45% by 15 September, 75% by 15 December, and 100% by 15 March.

Since crypto gains are taxed at 30% — significantly higher than most slab-rate incomes — the advance tax obligation can be substantial. If you fail to pay advance tax or pay less than 90% of the total tax liability by 31 March, interest under Section 234B at 1% per month on the shortfall and under Section 234C on each instalment deficiency will apply. If you realise a large gain late in the year, you can pay the entire balance as self-assessment tax before the return filing due date, but interest under Section 234B may still accrue from 1 April of the relevant financial year. Plan your tax payments as soon as you realise a significant gain — do not wait until July.

What steps should you take next for ITR filing with crypto income?

1. Download your exchange statements for FY 2026-27 immediately — most Indian exchanges (CoinDCX, WazirX, ZebPay) and foreign exchanges provide CSV or PDF transaction histories. Ensure you have date of acquisition, date of transfer, sale consideration, and cost of acquisition for every transaction.
2. Reconcile with AIS and Form 26AS on the incometax.gov.in portal — look for Section 194S TDS entries. If the gross consideration in your AIS does not match your records, resolve the discrepancy before filing to avoid a defective return notice under Section 139(9).
3. Determine your head of income honestly — if you are a buy-and-hold investor or an occasional trader with no books of account, use ITR-2 and report under Capital Gains. If you are running a systematic trading operation with books and turnover, use ITR-3.
4. Fill Schedule VDA transaction-wise — do not consolidate gains and losses. Each VDA transfer must be reported separately. Remember, loss from one VDA cannot be set off against profit from another VDA under Section 115BBH.
5. Check Schedule FA requirements — if you hold crypto on any foreign exchange or wallet (Binance, Kraken, MetaMask with foreign exchange), you must disclose the holding in Schedule FA. Non-reporting of foreign assets can attract significant penalties.
6. Pay advance tax or self-assessment tax promptly — the 30% VDA tax plus surcharge and cess can create a substantial liability. If you have not paid advance tax in four instalments, pay self-assessment tax before filing to avoid interest under Section 234B and Section 234C.
7. File before the due date — for non-audit cases for AY 2027-28, the due date is 31 July 2027 for most individuals. Filing after this date attracts late fee under Section 234F and interest under Section 234A. If you miss the deadline, a belated return for AY 2027-28 can be filed up to 31 December 2027 with applicable late fee.

Frequently Asked Questions