India tightens crypto rule with new 3rd-party reporting

The Indian government is transitioning from a self-reporting tax model for cryptocurrencies to a more robust, 3rd-party verification system. Under the newly introduced Section 285BAA of the Income-tax Act, the responsibility for reporting digital asset movements shifts heavily onto exchanges and custodians.

The New Reporting Mandate

Starting with the financial year beginning April 2026, reporting entities must furnish periodic statements of financial transactions related to VDAs.

• Mandatory Disclosures: Entities must report the nature of the crypto asset, aggregated transaction volumes (purchases and sales), and specific details of reportable users.
• Personal Information: Reports will include user names, addresses, and Tax Identification Numbers (TIN/PAN).
• Strict Timelines: Companies must submit these reports by January 31 of the following calendar year.
• Rectification Window: If a submitted statement is found to be defective, the reporting entity has only 30 days to correct it before facing penalties for providing inaccurate information.

Impact on Investors and Exchanges

This rule change effectively ends the era of “voluntary disclosure,” as the government will now have a direct feed of data to cross-verify against individual tax returns.

• Transparency: The new regime aims to strengthen oversight and ensure that the 30% flat tax on VDA gains and the 1% TDS (Tax Deducted at Source) are being accurately applied to every trade.
• Data Accuracy: Taxpayers are advised to ensure their disclosed income perfectly matches the entries in Form 26AS, as discrepancies will likely trigger automated tax notices.
• Compliance Burden: Crypto providers are expected to begin collecting the necessary data and verifying user self-certifications as early as January 1, 2026, to prepare for the first mandatory filing in early 2027.

Summary of Crypto Tax Framework (2025–2026)