Section 509 · Miscellaneous
Section 509 of the Income-tax Act, 2025 — Obligation to Furnish Information on Crypto-Asset (VDA) Transactions
By CA Rajat Agrawal
Updated 05 Jul 2026
Chapter XXIII
📜 What the law says — Section 509, Income-tax Act 2025
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 pre-
scribed 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).
Annual information statement.
In plain language
What Section 509 is about
Section 509 of the Income-tax Act, 2025 creates a brand-new third-party reporting obligation for the crypto ecosystem. It requires a class of businesses called "reporting entities" — think crypto exchanges, wallet providers, custodians and broker-type platforms — to file a statement of crypto-asset (Virtual Digital Asset, or VDA) transactions handled for their users with the Income-tax Department. It is the direct successor of Section 285BAA of the Income-tax Act, 1961, which was inserted by the Finance Act, 2025 with effect from 1 April 2026. When the new 2025 Act took over as the governing statute from 1 April 2026, the same obligation was re-codified as Section 509.
The key idea is simple: the platform reports, not (directly) the retail investor. Section 509 is a compliance and information-gathering tool that lets the tax department cross-check what individual traders declare in their returns against what exchanges actually recorded.
Who it applies to
- Reporting entities as prescribed by the CBDT. The Act itself does not hard-code the list; it empowers the Central Board of Direct Taxes (CBDT) to prescribe by rule who qualifies.
- In practice this is expected to cover crypto exchanges, custodians, wallet service providers, brokers and other intermediaries that facilitate or record crypto-asset transactions for Indian users.
- The obligation attaches to the entity handling the transaction, not to the ordinary buyer or seller. However, individual investors are indirectly affected because the department will now hold platform-level data on their trades.
What must be furnished
- A statement of crypto-asset transactions for the prescribed period.
- Filed within the prescribed time, in the prescribed form and manner, to the prescribed income-tax authority — all of these operational details are set by CBDT rules rather than in the section text.
- Expected data fields include transaction value, the nature of the crypto-asset, the parties involved and transaction timestamps, so that user-level activity can be reconstructed.
Defective statements and correction
- If the prescribed authority treats a filed statement as defective, it will intimate the reporting entity and give it an opportunity to rectify — the widely reported window is 30 days (extendable at the authority's discretion).
- If the entity later becomes aware that the information furnished is inaccurate, it must inform the authority and furnish correct information.
- Reporting entities are also expected to follow prescribed due-diligence procedures (for example, identifying and verifying users) so that the data collected is reliable.
Penalties for non-compliance
The penalties do not sit inside Section 509 itself — they are housed in the penalty provision of the 2025 Act (widely referenced as Section 446, the successor to Section 271FAA-type penalties):
- ₹200 per day for the period of continuing default in furnishing the statement within the prescribed time.
- ₹50,000 where the entity furnishes inaccurate information and fails to correct it, or fails to meet the prescribed due-diligence requirement.
How it fits with the rest of the crypto tax framework
- Definition of VDA / crypto-asset: the definition of "virtual digital asset" is expanded to expressly include crypto-assets, dovetailing with the reporting net cast by Section 509.
- Flat 30% tax on VDA gains (the old Section 115BBH) and 1% TDS on VDA transfers (the old Section 194S) continue in the 2025 Act. Section 509 does not create a new tax — it feeds information into enforcing these existing charges.
- Global alignment: the provision is designed to implement the OECD's Crypto-Asset Reporting Framework (CARF), under which India is expected to begin automatic exchange of crypto information with partner jurisdictions from 2027.
Practical implications
- For exchanges/platforms: build reporting pipelines, KYC/due-diligence records and correction workflows ahead of the first reporting cycle; budget for the daily penalty exposure.
- For investors: assume the department already sees your trades. Reconcile your Schedule VDA in the ITR with exchange statements, because mismatches will now be visible.
💡 Example
Worked example 1 — daily penalty for a late statement. Suppose a crypto exchange is required to file its Section 509 statement by, say, 31 May but files it 45 days late on 15 July. At ₹200 per day of default, the penalty works out to 45 × ₹200 = ₹9,000 under the penalty provision (Section 446). If the delay stretched to 200 days, the exposure would be 200 × ₹200 = ₹40,000.
Worked example 2 — inaccurate information penalty. An exchange files on time but reports a user's total sale value as ₹8 lakh when the correct figure was ₹18 lakh, and does not correct it despite being on notice. This can attract the flat ₹50,000 penalty for inaccurate information (and a similar ₹50,000 exposure for failing prescribed due-diligence). Note this ₹50,000 is a fixed amount, not a percentage of the ₹10 lakh understatement.
A relatable story. Riya trades on a Mumbai-based exchange and honestly reports a ₹2 lakh crypto profit in her ITR under Schedule VDA, paying 30% tax. Her friend Arjun trades on the same exchange but "forgets" to report a ₹5 lakh gain, assuming nobody is watching. From 1 April 2026, the exchange itself files a Section 509 statement listing both their transactions. When the department matches Arjun's PAN against the platform data, his unreported ₹5 lakh gain lights up instantly — leading to tax, interest and penalty on his side, while Riya, whose numbers match, sails through. Section 509 is what makes that automatic matching possible.
| Aspect | Position under Section 509, Income-tax Act 2025 |
|---|
| Who must report | Prescribed "reporting entities" — crypto exchanges, custodians, wallet providers, brokers, intermediaries |
| What is reported | Statement of crypto-asset (VDA) transactions: value, nature of asset, parties, timestamps |
| Form / period / authority | As prescribed by CBDT rules (operational details set by rule, not in the section) |
| Effective from | 1 April 2026 (originally via Section 285BAA of the 1961 Act, Finance Act 2025) |
| Defective statement | Authority intimates; entity given ~30 days (extendable) to rectify |
| Inaccurate info | Entity must inform authority and furnish correct information |
| Penalty — late/non-filing | ₹200 per day of default (via penalty Section 446) |
| Penalty — inaccurate info / due-diligence failure | ₹50,000 |
| International purpose | Implements OECD CARF; India to exchange crypto data from 2027 |
Related sections
Section 285BAA (1961 Act) — Original crypto-asset reporting obligation Section 446 — Penalty for failure to furnish statement / inaccurate information Flat 30% tax on income from transfer of virtual digital assets 1% TDS on transfer of virtual digital assets Section 2 — Definition of virtual digital asset / crypto-asset Statement of financial transactions — related third-party reporting
Frequently asked questions
Does Section 509 mean I, as an individual investor, have to file anything extra?
No. Section 509 places the reporting duty on prescribed reporting entities such as exchanges, not on individual buyers or sellers. You still report your own gains in Schedule VDA of your ITR and pay 30% tax, but the platform separately reports your transactions to the department.
From when does Section 509 apply?
The obligation is effective from 1 April 2026. It originally entered the law as Section 285BAA of the Income-tax Act, 1961 (inserted by the Finance Act, 2025) and was carried into the Income-tax Act, 2025 as Section 509.
What is the penalty if an exchange fails to file the crypto statement?
The penalty is ₹200 per day for the period of default in furnishing the statement, and ₹50,000 where inaccurate information is furnished and not corrected or where prescribed due-diligence requirements are not met. These penalties are levied under the penalty provision (widely cited as Section 446).
What information will exchanges report about my crypto trades?
The exact fields are set by CBDT rules, but reporting is expected to cover user-level transaction details such as the value of the transaction, the nature of the crypto-asset, the parties involved and transaction timestamps.
Can a defective statement be corrected?
Yes. If the tax authority treats a statement as defective, it intimates the reporting entity, which then gets around 30 days (extendable at the authority's discretion) to rectify it. If information is later found inaccurate, the entity must inform the authority and furnish correct information.
Why is India introducing this crypto reporting rule?
It aligns Indian law with the OECD's Crypto-Asset Reporting Framework (CARF). Under CARF, India is expected to begin automatic exchange of crypto-asset information with other jurisdictions from 2027, improving cross-border tax transparency.
Does Section 509 change how my crypto profits are taxed?
No. It is purely a reporting and information provision. The 30% flat tax on VDA gains (successor to Section 115BBH) and the 1% TDS on VDA transfers (successor to Section 194S) continue unchanged; Section 509 only strengthens enforcement of these charges.
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.
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