Section 446 · Penalties
Section 446 of the Income-tax Act, 2025 — Penalty for Failure to Furnish Information on a Crypto-Asset (VDA) Transaction
By CA Rajat Agrawal
Updated 05 Jul 2026
Chapter XXI
📜 What the law says — Section 446, Income-tax Act 2025
446. (1) If any person who is required to furnish a statement in respect of a trans-
action 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).]
Penalty for failure to furnish report under section 172.
In plain language
What Section 446 is about
Section 446 of the Income-tax Act, 2025 (as amended by the Finance Act, 2026, effective 1 April 2026) is a penalty provision aimed at crypto-asset reporting defaults. It backs up the reporting duty created by Section 509, which requires certain "reporting entities" to file a statement of crypto-asset (Virtual Digital Asset, or VDA) transactions with the Income-tax Department. If those entities do not file the statement, file it late, file wrong information, or ignore the prescribed due-diligence rules, Section 446 lets the tax authority impose a monetary penalty.
Importantly, the section number 446 was earlier associated with a different subject (failure to get accounts audited). The Finance Act, 2026 repurposed / re-populated this penalty framework to cover crypto-asset reporting failures. So when reading older commentary, be careful: the crypto-specific meaning is the post-Finance Act 2026 position.
Who it applies to
- Prescribed reporting entities — this is the intermediary layer, not the ordinary retail investor. Based on how the rules are framed, this is expected to cover crypto exchanges, trading platforms, brokers, custodians and wallet service providers that facilitate VDA transactions. The exact classes are to be notified through rules.
- Not directly the individual trader — a normal person buying or selling crypto does not file the Section 509 statement and so is not the direct target of Section 446. However, individuals are affected indirectly: as exchanges report more granular data, mismatches with your Income-tax Return become far easier for the Department to detect.
The two limbs of the penalty
- Failure to furnish the statement — ₹200 for every day that the default continues. This is a continuing, per-day penalty for not filing the Section 509 crypto statement within the prescribed time.
- Inaccurate information or due-diligence failure — ₹50,000. This applies where the entity furnishes inaccurate information and does not correct it after being told, or fails to comply with the prescribed due-diligence requirements (such as identifying and verifying the crypto-asset holder).
Key conditions and the "correction" safeguard
- The framework contemplates a correction / cure mechanism: where a defect or inaccuracy is flagged, the entity is generally given an opportunity and time to rectify it before the ₹50,000 penalty attaches. The precise notice period will be governed by the rules and the notice issued.
- The ₹200-per-day limb is a continuing penalty — the longer the statement stays unfiled, the larger the amount, so prompt filing sharply limits exposure.
- The penalty is levied by the prescribed income-tax authority, and general principles of natural justice (an opportunity of being heard) apply before any penalty order is passed.
How it interacts with related sections
- Section 509 creates the actual obligation — the statement, its period, form, manner, the authority to file with, holder identification and due-diligence duties. Section 446 is the enforcement teeth for Section 509.
- VDA / crypto-asset definition — the "crypto-asset" is brought squarely within the Virtual Digital Asset definition, aligning with the special crypto tax regime (flat tax on VDA gains, no set-off of losses, and TDS on VDA transfers).
- This regime is broadly aligned with global transparency standards such as the OECD Crypto-Asset Reporting Framework (CARF), under which India is expected to exchange crypto information from around 2027.
Practical implications
- Exchanges must build compliance systems now — data capture, KYC/due diligence, and timely statement filing, because a per-day penalty compounds quickly and a ₹50,000 head can repeat for repeated defaults.
- Investors should reconcile their own records with what exchanges will report. Under-reporting VDA income in your ITR becomes riskier when the Department independently holds transaction-level data.
- Because operational specifics (form number, exact due dates, correction window) are set by rules to be prescribed, entities should track CBDT notifications closely as the 1 April 2026 effective date rolls out.
💡 Example
Worked example 1 — late filing (per-day limb). A crypto exchange, "CoinBharat," is required to file its Section 509 crypto-asset statement but files it 45 days late. The penalty under the first limb is ₹200 × 45 days = ₹9,000. If the delay had stretched to 200 days, the exposure would be ₹200 × 200 = ₹40,000 — showing how a continuing per-day penalty escalates the longer the entity waits.
Worked example 2 — inaccurate information (fixed limb). Another platform, "VDAExchange," files on time but reports incorrect wallet-holder PAN details for several accounts and does not correct them despite being notified. The Department can levy the fixed penalty of ₹50,000 for furnishing inaccurate information that was not corrected, and a separate ₹50,000 head can arise for failure to meet due-diligence obligations under Section 509.
Relatable story. Riya, a salaried professional, traded crypto on a domestic exchange during FY 2026-27 and forgot to include a ₹1.8 lakh VDA gain in her ITR. Earlier she might have assumed it would go unnoticed. But because the exchange now files a Section 509 statement (and faces steep Section 446 penalties if it does not), the Department already holds her transaction data. Her return gets flagged for a mismatch, and she ends up paying tax with interest. The lesson: the Section 446 penalty machinery pushes exchanges to report faithfully, which in turn makes honest self-reporting by investors the only safe route.
| Default under Section 509 | Penalty under Section 446 | Nature | Applies to |
|---|
| Failure to furnish the crypto-asset statement within prescribed time | ₹200 for every day the failure continues | Continuing (per-day) | Prescribed reporting entity (exchange/platform/broker/custodian) |
| Furnishing inaccurate information and not correcting it after being told | ₹50,000 | Fixed | Prescribed reporting entity |
| Failure to comply with prescribed due-diligence requirements | ₹50,000 | Fixed | Prescribed reporting entity |
| Ordinary individual investor trading crypto | No direct Section 446 penalty (but indirect ITR-mismatch risk) | Indirect | Retail taxpayer |
Related sections
Section 509 — Obligation to furnish information on crypto-asset transactions Definition of Virtual Digital Asset (crypto-asset) under the Act TDS on transfer of Virtual Digital Assets Flat tax on income from transfer of VDAs (no loss set-off) Section 445 — Penalty for failure to furnish statement of financial transactions / reportable account Section 447 — Penalty for failure to furnish information or documents (associated defaults)
Frequently asked questions
Does Section 446 apply to me as an individual crypto investor?
Not directly. The Section 509 reporting duty (and therefore the Section 446 penalty) falls on prescribed reporting entities such as exchanges and platforms, not on retail traders. But since exchanges must report your transactions, any mismatch in your ITR can still be detected and taxed.
What is the penalty for failing to file the crypto statement?
₹200 for every day the failure continues. Because it is a per-day, continuing penalty, the amount grows the longer the statement stays unfiled, so entities should file promptly to cap their exposure.
What is the penalty for reporting wrong information?
₹50,000, which can be levied where the reporting entity furnishes inaccurate information and does not correct it after being notified, or where it fails to meet the prescribed due-diligence requirements under Section 509.
Is there a chance to correct a mistake before the penalty applies?
Yes. The framework contemplates a correction mechanism where flagged defects or inaccuracies can be rectified within the time allowed before the fixed ₹50,000 penalty attaches. The exact window will be set by rules and the notice issued.
Who is a 'reporting entity' for crypto reporting?
It is the intermediary layer expected to include crypto exchanges, trading platforms, brokers, custodians and wallet providers. The precise classes are to be notified through CBDT rules under Section 509.
When does Section 446 for crypto reporting take effect?
The crypto-asset reporting obligation under Section 509 — and the matching Section 446 penalty framework introduced by the Finance Act, 2026 — apply from 1 April 2026, with operational details prescribed through rules.
Was there a similar penalty under the old Income-tax Act, 1961?
There was no dedicated crypto-specific statement-failure penalty in the 1961 Act. Section 446 of the 2025 Act was repurposed to create this specific crypto-reporting penalty, broadly complementing India's move toward the OECD Crypto-Asset Reporting Framework (CARF).
C
CA Rajat Agrawal
Chartered Accountant, EaseValue · Reviewed 05 Jul 2026
This explainer is prepared and reviewed by EaseValue's tax team, based on the text of the Income-tax Act, 2025 (as amended by the Finance Act, 2026).
Disclaimer: This page explains the law in general terms for education and is not professional advice. The Income-tax Act, 2025 takes effect from 1 April 2026; provisions, thresholds and interpretations may change. Please confirm your specific position with our team before acting.
💬 Discussion & questions
0 comments · Ask anything about this — a Chartered Accountant or the community will reply.
Have a doubt about this (Section 446)? Ask here 👇
Free · takes 20 seconds · our CA answers. No account needed.
No comments yet — be the first to ask. 👆
EaseValue