How Do Indian Crypto Exchanges Support Users With Tax Compliance?

As India strengthens its legal framework for digital assets, a key focus area is crypto tax compliance. Classifying cryptocurrencies, NFTs, and other tokens for the first time as Virtual Digital Assets, the government has brought investors into the ambit of a defined taxation regime.

Since 2022, the Indian Income Tax Department has imposed stringent rules: a flat tax of 30% on profits from crypto transactions and a 1% TDS on certain transfers. Navigating such rules can be difficult for millions of Indians who are trading or investing in digital assets today.

Making this process easier, some Indian crypto exchanges have come forward by providing tools, systems, and educational resources that enable users to stay compliant. Let's examine how these exchanges support users in meeting tax obligations, the features they offer, and what users can do to make the most of them.

Understanding India’s Crypto Tax Framework

Before we delve into the role of exchanges, it's pertinent to first understand how the crypto tax system works in India:

• Flat 30%: The Income Tax Act has imposed a flat tax of 30% on gains under Section 115BBH for any profit made from the sale, exchange, or spending of cryptocurrencies.

• 1% TDS on transfers: Starting on July 1, 2022, 1% TDS is deducted on every crypto transfer above the threshold under Section 194S.

• No set-off of losses: Losses on crypto trades cannot be offset against any other income or carried forward into future years.

• Full reporting requirement: All crypto-transactions are required to be disclosed under Schedule VDA in your ITR.

• Mandatory KYC and compliance monitoring: Exchanges registered in India fall under the purview of the Financial Intelligence Unit (FIU-IND) and must adhere to AML regulations.

While these tax provisions bring transparency, they can be daunting for a new investor, which is where Indian exchanges play a vital role.

How Indian Crypto Exchanges Help Users Stay Tax-Compliant

Indian exchanges act as a bridge between users and regulators by embedding compliance features into their platforms. Here’s how they assist:

Automatic TDS deduction and recordkeeping

Most major Indian exchanges automatically deduct the 1% TDS on applicable transactions and remit it to the government on behalf of the user.

• This ensures that users don’t miss mandatory deductions.

• The TDS so deducted will be reflected in their Form 26AS or Annual Information Statement.

• It reduces manual tracking and potential tax discrepancies.

Complete Transaction Histories

Exchanges provide detailed transaction records, including:

• Buy/sell timestamps

• Quantity and price

• Cost basis and net gain/loss

• TDS details and trade references

These statements are available in CSV and PDF format and are necessary when submitting an income tax return.

Built-in tax calculators and reporting tools

Some exchanges now incorporate tax calculation capabilities or partner with third-party tax platforms to make reporting easier.

 These tools can:

• Automatically estimate gains that are taxable.

• Distinguish between short-term and long-term holdings.

• Export the summarized data in a format compatible with ITR software.

ITR Filing Support and Schedule VDA Guidance

Most exchanges offer guides and FAQs on how to declare crypto holdings and trades in ITR under Schedule VDA.

This helps users accurately disclose their digital asset income in compliance with Indian tax laws.

KYC and Compliance Reporting

All licensed Indian exchanges follow the Know Your Customer practice and share all relevant data about transactions with regulators when needed.

This fosters accountability and at the same time aids users in building a verified, traceable investment record.

Educational Resources and Alerts

Exchanges attempt to increase financial literacy with regular publishing of blogs, webinars, and alerts regarding crypto taxation, deadlines, and recent changes in regulation.

Step-by-Step: How to Use Exchange Tools for Tax Compliance

Here is a practical checklist for crypto investors looking to effectively handle compliance:

Step 1: Trade only on registered Indian exchanges that automatically deduct TDS.

Step 2: Keep your profile updated with valid PAN and KYC details.

Step 3. Check the TDS amount that has been deducted from your transaction history after every trade.

Step 4: Download the annual transaction statement at the end of the financial year, i.e., April 1 to March 31.

Step 5: Utilize exchange calculators or export your data into tax filing software to calculate gains.

Step 6: Check whether the TDS deducted is reflected in your Form 26AS or AIS on the Income Tax portal.

Step 7: Report your crypto transactions in Schedule VDA of your ITR.

Step 8: Keep backup copies of your reports and TDS certificates for audit purposes.

Comparison: Exchange Features that Assist in Tax Compliance

Pros and Cons of Relying on Exchanges for Tax Assistance

Pros

• Automatic TDS deduction minimizes the risk of default.

• Detailed statements make recordkeeping effortless.

• Integrated calculators help improve transparency.

• Educational materials do promote responsible investment.

• Data sharing with authorities helps users stay aligned with compliance norms.

Cons

• Exchange data may not include off-platform trading activity, such as DeFi or overseas exchanges.

• Cost-basis information can be incomplete when assets have been transferred in from external wallets.

• Exchanges do not file taxes; users are expected to take care of that on their own.

• Some features are not carried over to all platforms, in which case the user experiences are inconsistent.

• Changing tax rules can outpace the tools provided by exchanges.

Best Practices for Crypto Investors in India

Even with the support of exchanges, users must actively manage their compliance responsibilities. Key recommendations:

• Use only trusted, registered exchanges within the FIU: It ensures TDS and reporting features are implemented.

• Keep personal logs of wallet addresses, transfer records, and other off-exchange transactions.

• Cross-verify Form 26AS: The TDS that is reported by the exchanges needs to be matched against what the Income Tax Department displays in your profile.

• Stay tuned: Crypto taxation on your investments might change. Keep monitoring updates from CBDT, FIU, and your exchange's blog.

• Consult professionals for complex cases: For DeFi, staking, or cross-border transactions, an expert in taxation can come in handy in interpreting gray areas.

Conclusion

India's crypto ecosystem has grown at a rapid pace-and so have the country's laws concerning taxation. Crypto taxation rules now feature as an essential part of any trader's financial planning calendar. Amid this complexity, Indian exchanges are taking meaningful steps to simplify compliance for their users by automating TDS, providing ready-to-use reports, and promoting tax education. But let investors not forget that though exchanges make the task easier, the ultimate responsibility rests with the user-d-accurate return filing, maintenance of complete records, and constant updates on new tax notifications will keep penalties at bay. By leveraging the support tools of Indian crypto exchanges, and combining them with personal diligence, users will be able to confidently navigate the regulatory environment and ensure they remain fully compliant in this new era of digital finance.

Frequently Asked Questions

Q1: Do Indian crypto exchanges file taxes on my behalf?

No, exchanges only deduct TDS and provide a record of the transactions. You have to file your ITR yourself and show crypto gains under Schedule VDA.

Q2: If I only hold crypto and do not sell, do I have to pay tax?

Nope. You pay tax when you sell, convert or spend your crypto. But, record all of your purchases as you'll need these for future reporting.

Q3: What if I trade on a foreign exchange?

The foreign exchanges will not necessarily deduct TDS and follow Indian rules of taxation. You will have to calculate your liability and make payment of taxes in India on your own.

Q4: How can I access my TDS certificate from an exchange?

Most Indian exchanges allow you to download TDS summaries or certificates for your account in the “Reports” section. These can be used to verify the deductions in your Form 26AS.

Q5: Can I offset crypto losses against stock-market profits?

No. Under current law, crypto losses cannot be offset against any other income, including capital gains from shares or property.

Q6: Is the Taxation on NFTs Similar to That of Cryptocurrencies?

Yes, NFTs are considered to be Virtual Digital Assets and attract the same tax rate of 30% on gains and 1% TDS on transfers.