Introduction:

The Indian Government was surely listening when Steve Jobs said the above-mentioned quote. Over the last decade, the stance of the government has surely been interesting when it comes to dealing with cryptocurrencies. While Indian citizens are not prohibited from holding, buying, selling, or transacting in cryptocurrencies, the same are also not recognized as a legal tender. However, transactions in cryptocurrencies are heavily taxed in India with each transaction attracting a 30% tax on income/gains received from transfer of Virtual Digital Assets (VDAs). Cryptocurrency transactions in India face not only a heavy tax burden but also intensive monitoring through a robust compliance framework designed to combat cybercrime, money laundering, and other financial offences.

Impact of Finance Bill 2026 on Crypto Assets Transactions
While the VDA industry was vying for some sort of relief in the current taxation regime, the Finance Bill 2026 proposes more compliance regulations and a new penalty framework for crypto-asset transactions. As per Clause 87 of the Finance Bill 2026, any person who fails to furnish a statement for a transaction of a crypto-assets under Section 509(1) will attract a penalty of Rs. 200 per day until such failure continues. This penalty being a ‘per day’ penalty can add up quickly to larger amounts as there is no cap that seems to be placed upon the penalty levied.

Over and above this, there is also a penalty of Rs. 50,000 on any person who provides inaccurate particulars in their statement or fails to remove such inaccuracies as per Section 509(4) of the Income Tax Act, 2025. The same is to come into effect from 1st April 2026.

Clause 87 of Finance Bill 2026 is reproduced below for perusal:

Clause 87 of Finance Bill 2026:
Substitution of new section for section 446 – For section 446 of the Income-tax Act, the following section shall be substituted, namely: —
“446. (1) If any person who is required to furnish a statement in respect of a transaction of a crypto-asset under section 509(1), fails to furnish such statement within the time prescribed under the said section, the prescribed income-tax authority under that section may impose on him, a penalty of ` 200 for every day for which such failure continues.
(2) The prescribed income-tax authority may impose a penalty of ` 50000 on a person referred in sub-section (1), if such person—
(a) provides inaccurate information in the statement and fails to remove such inaccuracy as per section 509(4); or
(b) fails to comply with due diligence the requirement under section 509(5).”.

Note: It is to be noted that previously Section 446 of the Income Tax Act, 2025 talked about a fees or penalty on a person who fails to fulfill their audit obligations. The same is substituted with the Section reproduced above but is not fully removed from the new Finance Bill 2026. The penalty on failure to get one’s account audited or a failure to furnish the audit report as required under Section 63 of the Income Tax Act is under Clause 83 of the Finance Bill 2026.

Coming back to the penalty proposed to be imposed under the new Section 446 as per Clause 87 of the Finance Bill, the section has a strict and a particular penalty levied on the defaulters. A strict Rs. 200 per day penalty on a failure to furnish such statement. A penalty of Rs. 50,000 is also proposed for providing inaccurate particulars of income, failure to resolve such inaccuracy and for failing to comply with the due diligence requirement under Section 509(5). There is not flexibility in terms of the quantum of penalty which is another indication of how the Indian Government is taking any discrepancies in relation to crypto trade seriously. It would not be wrong to assume that every crypto-transaction is going to be monitored with a microscopic lens with the advent of the new Income Tax Act 2025. If the reader is not convinced with this observation, a quick read of the obligations to furnish information on crypto-asset transactions under Section 509 of the Income Tax Act 2025 might help to convince them. However, the use of the word ‘may’ for the levy of penalty seems to suggest that the levy of penalty shall not be automatic but discretionary. This should be able to ensure that genuine cases are not subject to undue hardship.

What are the Obligations to Furnish information on crypto-asset transactions?

While the penalty on failure to submit a statement on crypto-asset transaction is a part of the Finance Bill 2026, the obligations to furnish such a statement was introduced last year with the Income Tax Act 2025. As per Section 509 of the Income Tax Act 2025, there is a mandatory obligation on prescribed reporting entities to furnish a statement reporting transactions concerning crypto-assets. Crypto-assets or VDAs are defined under Section 2(111)(d). Reporting entities include crypto exchanges, platforms, intermediaries, or any other persons as notified by the Central Government.

Section 509 of the Income Tax Act 2025 reads as follows:
Obligation to furnish information on transaction of crypto-asset.
509. (1) Any person, being a reporting entity, as may be prescribed, in respect of a crypto-asset, shall furnish information in respect of a transaction of such crypto-asset in a statement, for such period, within such time, in such form and manner and to such income-tax authority, as may be prescribed.
(2) Where the prescribed income-tax authority considers that the statement furnished under sub-section (1) is defective, he may intimate the defect to the person who has furnished such statement and give him an opportunity of rectifying the defect within thirty days from the date of such intimation or such further period as may be allowed, and if the defect is not rectified within such period, the provisions of this Act shall apply as if such person had furnished inaccurate information in the statement.
(3) Where a person who is required to furnish a statement under sub-section (1) has not furnished the same within the specified time, the prescribed income-tax authority may serve upon such person a notice requiring him to furnish such statement within a period not exceeding thirty days from the date of service of such notice and he shall furnish the statement within the time specified in the notice.
(4) If any person, having furnished a statement under sub-section (1), or in pursuance of a notice issued under sub-section (3), comes to know or discovers any inaccuracy in the information provided in the statement, he shall within ten days inform the prescribed income-tax authority, the inaccuracy in such statement and furnish the correct information in such manner as may be prescribed.
(5) The Central Government may, by rules prescribe—
(a) the persons referred to in sub-section (1) to be registered with the prescribed income- tax authority;
(b) the nature of information and the manner in which such information shall be maintained by the persons referred to in clause (a); and
(c) the due diligence to be carried out by the persons referred to in sub-section (1) for the purpose of identification of any crypto-asset user or owner.
(6) For the purposes of this section, the expression “crypto-asset” shall have the meaning assigned to it in section 2(111)(d).

Section 509(1) clearly states that any person being a reporting entity has to furnish information on a crypto asset transaction and the said submission has to be:
a. For a specified period,
b. Within the prescribed time,
c. In a certain form and manner,
d. To a specified income tax authority.

All the aforementioned details will be so prescribed/notified by the department in the near future as part of the new Income Tax Rules, 2026. As of the present date, the Central Board of Direct Taxes (‘CBDT’) released the draft of Income Tax Rules, 2026 on 07th February 2026 and invited suggestions for the same until 22nd February 2026. Rule 242 and Rule 243 are the corresponding rules to Section 509 of the Income Tax Act, 2025. A quick glance at the rules would let the reader know that the government is leaving no stone unturned when it comes to monitoring the trade of crypto-assets transactions. So much so that as per Section 509(5), on being notified by the Central Government, the persons acting as reporting entities will be responsible for conducting due diligence ‘for the purpose of identification of any crypto-asset user or owner’. It is safe to say that while the Government is embracing the digitization of the economy, the taxpayers participating in the new form of trade have a very short leash for the same.

An interesting point of commonality under Section 509 of the Income Tax Act, 2025 and the new proposed Section 446 in Finance Bill, 2026 is to be observed at this juncture. The existence of the word ‘may’. Section 509 (2), 509 (3), 509 (4) and 509(5) all feature the word ‘may’ when it comes to the powers given to the prescribed income tax authority under the said section. In the same way, the proposed section of penalty also contains the word ‘may’. This directly means that the discretion to act in such circumstances would lie with the prescribed income tax authority. Only time will tell how judiciously the said discretion is exercised by income tax authorities.

Why such stringent provisions for crypto-asset transactions?
One is not wrong to be curious about introducing such strict penalty provisions for failures in compliance obligations on crypto-asset transactions. A formal inquiry for the reason would take us directly to the Speech of the Finance Minister, the Notes on Clauses and the Memorandum of the Finance Bill, 2026. The Speech of the Finance Minister and the Notes on Clause are a mere summary of the penalty provision but the Memorandum explaining the provisions in the Finance Bill, 2026 makes the intention of the government clear. The Memorandum states that, in order to ensure compliance with section 509 of the Income Tax Act, 2025 and to discourage non-furnishing of the statement or submission of inaccurate information, a new penalty provision is proposed to be introduced.

The object therefore is twofold, to ensure compliance and to deter any such failures on part of the reporting entities. Therefore, it is made abundantly clear that the government intends on the strictest compliance possible with the statutory obligations on furnishing statement on crypto asset transactions.
Moreover, the enhanced compliances are also a part of India’s commitments to Crypto-Asset Reporting Framework (CARF) developed by the OECD (Organisation for Economic Co-operation and Development). The CARF is crucial in identifying tax compliance risks from the rapid growth of crypto-assets on a global scale. With a rise in the number of crypto assets, the risk of illegal cross border transactions and money laundering schemes is also increasing. While India is not one of the 38 member countries, it has been a crucial partner of the OECD to promote fair taxation and avoid evasion in any form.

One cannot leave this conversation without mentioning India’s obligations to the Financial Action Task Force (FATF), the nodal agency responsible for tackling money laundering and terrorist finance. India is a full-time member of the FATF since June 2010 and thus, is bound by its obligations to have a stringent compliance framework in place.

Conclusion:
The new penalty provisions introduced as a substitution of Section 446 in Clause 87 of the Finance Bill, 2026 send a clear message to reporting entities that timely and accurate disclosures are non-negotiable. The penalty is stringent and goes a long way to show that India remains committed to combat tax evasion in all its forms: crypto or cash.
[Source : AIFTP Journal February 2026 Volume 28 No. 11]

Posted on: April 2nd, 2026