Union Budget 2026 Introduces Penalty Provisions for Cryptocurrency Reporting Non-Compliance
In a significant move during the Union Budget 2026 presentation, Finance Minister Nirmala Sitharaman has proposed stringent penalty provisions for non-compliance in the reporting of cryptocurrency assets. This initiative aligns with the new Income-Tax (I-T) Act, 2025, which is scheduled to come into effect from April 1, 2026. During her Budget speech, Sitharaman emphasized the need for robust compliance mechanisms to ensure transparency and accountability in the rapidly evolving digital asset space.
Details of the Proposed Penalty Provisions
The Finance Minister stated, “To ensure compliance with the provisions of Section 509 of the Income-tax Act, 2025 and create a deterrence for non-furnishing of statement or for furnishing inaccurate information in respect of crypto assets in such statement, it is proposed to introduce a penalty provision.” This announcement marks a pivotal step in formalizing regulatory frameworks for cryptocurrency transactions in India, aiming to curb tax evasion and enhance financial oversight.
Understanding Section 509 of the New Income-Tax Act
Section 509 of the new I-T Act specifically addresses “Penalty provision for non-furnishing of statement or furnishing inaccurate information in a statement on transaction of crypto assets.” This section imposes an obligation on reporting entities to furnish accurate information regarding cryptocurrency transactions. The proposed penalty framework is introduced through an amendment to Section 446 of the Act and will be enforced starting April 1, 2026.
Penalty Structure for Non-Compliance
The penalty provisions under Section 509 are designed to ensure strict adherence to reporting requirements:
- A penalty of ₹200 per day will be levied for the non-furnishing of required statements related to crypto asset transactions.
- Additionally, a penalty of ₹50,000 will be imposed for furnishing inaccurate particulars or failing to correct such inaccuracies in the submitted statements.
These measures aim to deter non-compliance and promote accurate reporting, thereby strengthening the integrity of the tax system in the context of digital assets.
Industry Response and Stakeholder Perspectives
Ashish Singhal, Co-founder of CoinSwitch, described the move as a “positive milestone for the crypto industry.” He noted that by imposing penalties, the government has “formalised high standards of tax compliance and reporting for both users and VASPs (Virtual Asset Service Providers).” However, Singhal also highlighted ongoing challenges, stating that while compliance and surveillance have tightened, true growth requires economic rationalization.
He expressed concerns about the current tax framework, saying, “The 1% TDS, lack of offset of losses and the 30% flat capital gains rate, create an asymmetric environment for genuine participation. They risk driving Indian capital toward non-compliant offshore platforms, leaving users vulnerable to legal and financial scrutiny.”
Budget Expectations from the Cryptocurrency Sector
The cryptocurrency industry had several key expectations from the Union Budget 2026, which remain unaddressed in the current proposals:
- Reduction in TDS on VDA (Virtual Digital Asset) transactions from 1%.
- Raising the TDS threshold to ₹5 lakh.
- Review of the flat 30% tax on VDA gains.
- Allowance of offset for losses from VDA transactions.
- Aligning capital gains taxation with income slabs.
- Introduction of a dedicated Crypto Bill in India.
- Alignment of SEBI guidelines for companies holding BTC on balance sheets.
Overview of the New Income-Tax Act, 2025
The Income Tax Act, 2025, which replaces the 1961 law, was officially notified by the Centre on August 22 in the Official Gazette. Passed by Parliament during the Monsoon Session last year, this new Act is set to take effect from April 1, 2026. It aims to simplify the previous legislation, resulting in a shorter, clearer, and more concise document that benefits taxpayers.
Key features of the new Act include:
- Elimination of redundant provisions and archaic language, making it more accessible to common people.
- Reduction in the number of Sections from 819 to 536 and chapters from 47 to 23.
- Renaming of Assessment Year (AY) and Financial Year (FY) to Tax Year to avoid confusion.
- Retention of existing slab rates for salaried individuals, businesspersons, professionals, and other taxpayers.
- Continuation of the controversial provision allowing income tax officials to access emails and social media during search operations, retaining the definition of “virtual digital space.”
- Reduction in word count from 5.12 lakh to 2.6 lakh, with the introduction of 39 new tables and 40 new formulas to replace dense text and enhance clarity.
This comprehensive overhaul of the tax legislation reflects the government's commitment to modernizing India's fiscal framework while addressing emerging challenges in the digital economy, including the regulation of cryptocurrency assets.
