Crypto Tax in India 2026: 30% Tax, 1% TDS, ITR and New Crypto Reporting Rules

By CA Surekha S Ahuja 

The Complete Practical Guide for Crypto Investors, Traders and VDA Holders

Crypto taxation in India is no longer simply about paying 30% tax on your profit.

For an investor, the compliance trail can now involve 30% VDA tax, 1% TDS, transaction-wise ITR reporting, crypto-to-crypto transfers, exchange and wallet records, and a new information-reporting framework for crypto-asset service providers.

The key message is:  In crypto taxation, the transaction trail is becoming as important as the tax calculation.

30% Tax and 1% TDS Are Two Different Things

Income from transfer of a Virtual Digital Asset is taxable at 30% plus applicable surcharge and cess.

Only the cost of acquisition is deductible. No deduction is allowed for other expenditure or allowance, and VDA losses cannot be set off against other income or carried forward.

Broadly:

Sale consideration – Cost of acquisition = VDA income

Separately, 1% TDS applies to specified VDA transfers, subject to the applicable conditions and thresholds.

Component	What it means
30% tax	Tax on taxable VDA income
1% TDS	Tax deducted at source on specified VDA consideration
TDS credit	Credit against final tax liability

1% TDS is not the final crypto tax.

For example, if crypto costing ₹5 lakh is transferred for ₹8 lakh, the broad VDA income may be ₹3 lakh, whereas TDS is determined with reference to the applicable consideration, not simply the profit.

TDS Can Apply Even Where There Is a Loss

Suppose:  Cost = ₹10 lakh  Transfer consideration = ₹9 lakh

There is an economic loss of ₹1 lakh. Yet TDS may still apply if the statutory conditions are satisfied.

This illustrates the fundamental difference:

TDS is linked to the transaction. Final tax is linked to taxable income.

Therefore, TDS deducted does not mean that the taxpayer has necessarily earned a profit.

Crypto-to-Crypto Transactions Cannot Be Ignored

Suppose:  Bitcoin → Ethereum  and no INR is received.

The absence of cash does not automatically make the transaction tax-free. The VDA provisions apply to transfers, and Schedule VDA requires detailed, transaction-wise disclosure.

The same principle should be kept in mind for token-to-token exchanges and crypto used as consideration.

No INR received does not automatically mean no tax event.

The exact tax and TDS consequences should, however, be determined from the structure of the transaction.

What Happens When Crypto Moves to Your Own Wallet?

Moving crypto from: Exchange → Own Wallet

does not automatically mean that the asset has been sold.

However, the taxpayer should preserve:

• Exchange withdrawal statement, Wallet address , Transaction hash
• Date and quantity,  Evidence connecting the wallet with the taxpayer

The same discipline should be followed when crypto moves back from the wallet to an exchange.

A clean wallet trail can help distinguish an internal movement of one's own asset from an actual disposal.

The Biggest Change: Crypto Is Becoming a Reporting Ecosystem

The major development is not another tax rate. It is the expansion of information reporting.

From calendar years beginning 1 January 2026, qualifying Reporting Crypto-Asset Service Providers are required to maintain and report specified information relating to reportable users and relevant crypto transactions. The framework covers, among other things, acquisitions and disposals against fiat, crypto-to-crypto transactions and specified transfers.

The information chain can increasingly look like: 

Exchange

↓

TDS

↓

Crypto-asset reporting

↓

Banking trail

↓

ITR

The practical message: Crypto activity should no longer be assumed to be invisible simply because it takes place on a digital platform.

Form 167 Is Not an Individual's ITR

This is an important distinction.

Form 167 is the reporting statement for the Reporting Crypto-Asset Service Provider, not a return that every individual crypto investor has to file. Rule 243 requires the reporting statement to be furnished in Form 167 by 31 May of the following calendar year.

For example, reporting for the relevant calendar year 2026 would be due by 31 May 2027.

For the investor, the significance is indirect but important: Relevant transaction information may reach the tax administration independently of what the investor reports in the ITR.

Which Crypto Platforms Come Within the Reporting Framework?

The reporting rules are not limited simply to a platform calling itself an "Indian exchange."

Rule 242 covers specified Reporting Crypto-Asset Service Providers having prescribed Indian connections, including Indian tax residence, Indian incorporation or organisation, legal personality or return-filing obligation in India, management from India, or a regular place of business in India. It also covers relevant transactions through an India-based branch in specified circumstances.

Therefore:  Foreign exchange does not mean foreign tax exemption.

An Indian taxpayer using an overseas platform still needs to examine his or her own Indian tax obligations separately.

ITR Reporting Is Transaction-Wise

Crypto income is not simply a number to be picked from an exchange's annual "profit" statement.

Schedule VDA requires detailed information for each transfer, including:

• Date of acquisition , Date of transfer,  Head of income
• Cost of acquisition , Consideration received, Income from transfer

Where a transaction results in a loss, the prescribed Schedule VDA treatment is to report the income from that transaction as nil.

The underlying transaction ledger therefore matters.

A taxpayer should not rely merely on: Net bank withdrawals

or    Exchange headline profit  to determine taxable VDA income.

Crypto Losses Are Particularly Restrictive

The special VDA regime does not provide the normal flexibility available for many other investments.

A VDA loss: 

• cannot be set off against other income
• cannot be set off against another VDA's income
• cannot be carried forward

under Section 115BBH.

Therefore: Bitcoin profit ₹5 lakh,  Ethereum loss ₹3 lakh

does not automatically mean Net taxable VDA income ₹2 lakh.

The special VDA provisions must be applied.

What About Mining, Staking, Airdrops and Crypto Received as Income?

Not every crypto receipt is automatically a capital gain.

Separate analysis may be required for:

Mining | Staking | Airdrops | Salary | Professional fees | Business activity | Rewards | Gifts

The nature of the receipt must first be identified.

Subsequent transfer of the crypto can create a separate tax consequence.

This is why a simple "crypto profit calculator" may not always give the correct tax answer.

The Five-Way Crypto Reconciliation

For a robust tax computation, reconcile:

Record	What it establishes
Exchange statement	Purchases, sales, swaps and transfers
Wallet records	Movement of crypto
Bank statement	Fiat movement
TDS / AIS	Tax deduction and reported information
ITR Schedule VDA	Final tax disclosure

If these records do not broadly reconcile, investigate the difference before filing the return.

What Should Every Crypto Investor Preserve?

At a minimum: Exchange statements , Purchase and sale records, Cost of acquisition, TDS details,

Bank statements,  Wallet addresses, Transaction hashes

Crypto-to-crypto swap records

Mining / staking / airdrop records

Gift documentation, wherever relevant

ITR working papers

Do not wait until ITR filing to reconstruct your crypto history.

Maintain the trail from the date of transaction.

Five Common Crypto Tax Mistakes

1. Thinking 1% TDS is the final tax -  It is not.

2. Calculating tax only on bank withdrawals - The taxable event and the bank movement are not necessarily the same.

3. Ignoring crypto-to-crypto swaps - No INR receipt does not automatically make a transfer irrelevant.

4. Treating every wallet movement as a sale—or assuming every wallet movement can never have tax consequences - The facts and transaction trail matter.

5. Assuming a foreign exchange is outside Indian tax compliance - The platform's reporting status and the investor's own Indian tax liability are separate questions.

What Does This Mean for the Common Investor?

The Indian crypto regime is gradually moving from: "Declare your crypto profit"  to:

"Maintain and reconcile your entire crypto transaction trail."

The tax administration can increasingly receive information through multiple channels, while the taxpayer remains responsible for correctly computing and reporting taxable income.

This makes record keeping, reconciliation and transaction classification as important as the final tax calculation.

The Crypto Tax Compliance Chain

Transaction

↓

TDS where applicable

↓

Exchange and wallet records

↓

Information reporting

↓

Schedule VDA

↓

30% special tax regime

↓

TDS credit / balance tax

Final Takeaway

For an Indian crypto investor, the biggest tax risk in 2026 may not be the 30% tax rate itself.

It may be the mismatch between exchange data, wallet movements, TDS, banking records and VDA disclosures in the ITR.

Track crypto when you trade, not when you file your ITR.

Because: **The ITR is filed once.

The transaction trail is created every day.**

For crypto, documentation is no longer merely bookkeeping. It is part of tax defence.

“FREE” Under GST: The FMCG Promotional Schemes That Can Quietly Increase Your Tax Cost

By CA Surekha Ahuja

Free Samples | BOGO | Extra Quantity | Bundles | Gifts | Promotional Assets | Expired Stock

“FREE” is a marketing word. It is not a GST conclusion.

For an FMCG business, “Buy 1 Get 1”, “Buy 2 Get 1”, “20% Extra”, “Free Sample”, “Free Gift” and “Festival Hamper” may all look like promotions.

Under GST, they can have very different consequences.

The real issue is not merely whether GST is payable on the outward movement. It is also:

What happens to the ITC?

CBIC has specifically clarified the treatment of free samples and “Buy One Get One Free” schemes, making the distinction between a genuine free sample and a multi-item supply for a single price particularly important.

The 7-Point GST Decision Matrix

#	Promotional scheme	GST view	ITC impact	The question Tax must answer
1	🎁 Free Sample	Generally no outward GST if genuinely without consideration	ITC blocked u/s 17(5)(h), subject to the applicable facts	Is it genuinely a free sample?
2	🛒 BOGO / Buy 2 Get 1	Not a separate free supply; treat the transaction as a whole	Generally not a free-sample ITC reversal merely because one item is called “free”	What is the single consideration for the transaction?
3	📦 Different Products in One Offer	Composite vs Mixed Supply analysis	Depends on normal ITC eligibility	Are they naturally bundled?
4	➕ Extra Quantity Free	Examine whether the extra quantity is part of the same supply	No automatic 17(5)(h) reversal merely because of “free” wording	Is there actually a separate free supply?
5	🎁 Gift / Promotional Merchandise	Genuine gift may not constitute outward supply	17(5)(h) ITC risk	Is it a gift or a business-related transfer?
6	🧊 Fridge / Rack / Visicooler	Depends substantially on whether ownership is transferred	Depends on the nature of the transaction	Who owns the asset after placement?
7	📉 Expired / Destroyed Stock	No GST merely because goods are destroyed	17(5)(h) ITC block	Has the write-off, destruction and ITC treatment been properly documented?

Section 17(5)(h) specifically covers goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples.

1. FREE SAMPLE: No Output GST Does Not Mean No GST Cost

Suppose a company distributes a product sample free of charge, with no consideration.

Generally, there is no supply under GST, except where Schedule I applies.

But there is a second question:

What happens to the ITC?

Section 17(5)(h) blocks ITC in respect of goods disposed of by way of gift or free samples.

CBIC Circular No. 92/11/2019-GST specifically clarifies that ITC is unavailable to the extent inputs, input services and capital goods are used in relation to gifts or free samples distributed without consideration.

Therefore:  No outward GST ≠ No GST cost.

This is the first trap every FMCG tax team should identify.

2. BOGO: “FREE” Does Not Make It a Free Sample

Consider: Buy 1 Soap, Get 1 Soap Free

or even: Buy Toothpaste, Get Toothbrush Free

CBIC has specifically clarified that a BOGO offer is not an individual supply of one paid item plus one independently supplied free item.

It is, at best, two or more supplies for a single price.

Its taxability therefore depends on whether the arrangement is a composite supply or mixed supply, with Section 8 determining the tax treatment.

The practical distinction

Free Sample

→ No consideration
→ Examine Section 17(5)(h)

BOGO

→ Single promotional consideration
→ Analyse the entire transaction

Do not let the word “FREE” in the advertisement determine the GST treatment.

3. DIFFERENT PRODUCTS: The Highest-Rate Trap

This is where a seemingly attractive promotion can become expensive.

For example:

Shampoo + Conditioner

Soap + Handwash

Biscuits + Beverage

Festival Hamper containing multiple products

The first question is:

Composite Supply or Mixed Supply?

If it is a composite supply, the principal supply determines the rate.

If it is a mixed supply, the highest applicable rate can apply to the entire supply.

Therefore:

Different products do not automatically mean mixed supply.

The statutory tests must be applied to determine whether the products are naturally bundled.

This distinction is specifically recognised in CBIC's clarification on promotional schemes.

4. “20% EXTRA FREE” Is Not Automatically a Free Supply

Consider: 100 ml + 20 ml FREE

The word FREE does not by itself decide the tax treatment.

The real question is:  Is the additional quantity part of the same supply for the same consideration, or is there a separate supply?

This requires looking at the commercial structure, packaging, pricing, invoice and actual transaction together.

The rule:

Never classify a promotion from its advertisement alone.

The economic substance of the transaction must drive the GST analysis.

5. FREE GIFTS: The ITC Cost Often Gets Missed

FMCG companies commonly distribute:

• T-shirts
• Caps
• Bags
• Watches
• Gift hampers
• Promotional merchandise

If goods are genuinely disposed of by way of gift, Section 17(5)(h) becomes critical.

The accounting entry may simply say:

Marketing / Promotion Expense

But accounting nomenclature does not determine GST.

Ask first: Is this a genuine gift? Or is it:

a taxable business transfer / part of a commercial arrangement?

That distinction can materially change the GST treatment.

6. FREE FRIDGE / DISPLAY RACK: Who Owns It?

This is a classic FMCG blind spot.

A beverage company may place a branded refrigerator at a retailer.

But two very different situations can exist:

Returnable

Company retains ownership.

Permanently transferred

Retailer becomes owner.

A permanent transfer of a business asset on which ITC has been availed can fall within Schedule I, making the transaction potentially taxable even without consideration.

Therefore:

For promotional assets, the first question is not “Is it free?”—it is “Who owns it after the promotion?”

That single question can completely change the GST analysis.

7. EXPIRED / DESTROYED STOCK: The Forgotten ITC Leakage

FMCG businesses regularly deal with:

Expiry | Damage | Recall | Obsolescence | Destruction | Write-off

Section 17(5)(h) specifically covers goods lost, stolen, destroyed or written off.

But the practical risk is bigger than the reversal itself.

Can the company prove:

• what goods were destroyed?
• which batches were affected?
• when were they destroyed?
• who approved the write-off?
• what ITC was attributable?
• was the reversal correctly made?

GST records themselves require stock records covering goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples.

Professional point:

A write-off without an audit trail is an invitation to a dispute.

The Ultimate “FREE” Test

Before Marketing launches any promotion, Tax should answer just 6 questions:

1. WHAT?

What exactly is being supplied?

2. CONSIDERATION?

Is there consideration? If yes, what is the customer actually paying for?

3. BUNDLE?

Are multiple products being supplied together?

4. CLASSIFICATION?

Composite supply or mixed supply?

5. ITC?

Does Section 17(5) restrict the credit?

6. OWNERSHIP?

For promotional assets, who owns them after the transaction?

The CFO's 30-Second GST Checklist

FREE SAMPLE

No outward GST → ITC risk

BOGO

Not a free sample → analyse the whole transaction

DIFFERENT PRODUCTS

Composite/Mixed Supply test

EXTRA QUANTITY

Look at the actual supply—not the word “FREE”

GIFT

Section 17(5)(h) check

PROMOTIONAL ASSET

Ownership check

EXPIRED / DESTROYED STOCK

ITC + documentation check

The Real Business Cost

Most marketing teams calculate:

Promotion Cost = Product Cost + Advertising Cost

A CFO should look at:

Tax-Adjusted Promotion Cost

**Commercial Cost

• Blocked ITC
• Unrecoverable GST
• Compliance Cost**

That is the number that should be compared with the incremental contribution generated by the campaign.

A promotion that looks profitable before GST can become far less attractive after its tax cost is recognised.

The One Rule Worth Remembering

FREE is not a GST category.

A free sample, BOGO, extra quantity, gift, mixed-supply hamper and promotional asset can all look similar in a marketing presentation—and yet have very different GST consequences.

So before approving any “FREE” scheme:

SUPPLY → CONSIDERATION → BUNDLING → RATE → ITC → OWNERSHIP

Get these six right, and most promotional GST surprises disappear.

Final Takeaway

The question should never be:

“Is it free?”

It should be:

“What is the legal and economic character of the entire transaction?”

For an FMCG business, promotional design is tax design.

The GST cost should be determined before the campaign is launched—not when the GST return is filed, and certainly not when the notice arrives.

GST Job Work Without Bringing Goods to Your Factory: Can ITC Be Denied

 By CA Surekha S Ahuja

E-Way Bill, Job-Work Documentation & GST Defence for Steel, Garment and Manufacturing Businesses

The goods may not come to your factory. But your evidence must show exactly where they went.

This is a common business model. A steel company purchases coils and sends them directly from the supplier to a slitting job worker.

A garment exporter purchases fabric and sends it directly for dyeing, printing, stitching or embroidery.

It saves freight, handling and storage. But GST scrutiny may ask:

“The invoice is in your name. The goods never entered your premises. Where is the proof of receipt? Where is the e-way bill? Why should ITC be allowed?”

The answer is important because three separate issues are often wrongly mixed together:

ITC eligibility ≠ job-work compliance ≠ e-way-bill compliance

1. THE LAW IN ONE VIEW

Provision	Key principle
Section 16(2)(b)	Receipt of goods is an ITC condition; the law recognises delivery to another person on the recipient's direction
Section 19(2)	ITC on inputs sent directly to a job worker without first coming to the principal's premises is expressly recognised
Section 143	Provides the statutory job-work framework and responsibility of the principal
Rule 45	Job-work goods move under the principal's challan, including direct dispatch to the job worker
Rule 138	E-way-bill requirements apply independently; inter-State principal-to-job-worker movement has specific requirements

Therefore: No physical receipt at the principal's factory does not, by itself, destroy ITC.

But:  Direct job-work movement does not mean “no documentation” or “no EWB”.

2. THE REAL PAIN POINT — WHEN EWB BECOMES A “BOGUS PURCHASE” ALLEGATION

Case Study — Steel

ABC Steel purchases:  100 MT steel coils — ₹2 crore + GST

Commercially:  Supplier → Job Worker

instead of:  Supplier → ABC → Job Worker

Later, GST alleges: Goods were not received by ABC.

Then: E-way-bill/documentation is deficient.

Then: Purchase is doubtful → ITC is inadmissible.

The taxpayer must break this chain with evidence:

Purchase Order

→ Supplier Invoice

→ Direct-delivery instruction

→ Principal's challan

→ E-way bill, where required

→ Transport/LR

→ Job-worker receipt

→ Coil/weight identification

→ Processing record

→ Wastage/scrap

→ Finished goods

→ Sale/export

The best defence is not “the goods went to our job worker”.

It is:  “Here is the complete, reconciled trail proving where the goods went and how they were used.”

3. GARMENT EXPORTERS: THE SAME RISK, MULTIPLE TIMES

10,000 metres fabric - 

Dyeing

↓

Printing

↓

Cutting/Stitching

↓

Embroidery

↓

Finishing

↓

Export

GST scrutiny can ask:

Where is the fabric? Who received it? How much was consumed? What was the wastage? Where is the balance? How did it become exported garments?

Maintain:  Opening stock + receipts + transfers − consumption − documented wastage/scrap = closing stock

In a job-work business, quantity reconciliation is GST evidence.

4. WHAT THE DEPARTMENT MAY ALLEGE — AND HOW TO ANSWER

Allegation	Defence
Goods never came to factory	Section 19(2) + direct-delivery evidence
No physical receipt	Job-worker acknowledgement + transport + stock
Purchase is bogus	Supplier + invoice + payment + goods + processing + output
No EWB	First establish whether EWB was legally required
EWB defective	Identify exact defect and its legal consequence
No challan	Address the specific Rule 45 lapse
Quantity mismatch	Purchase-to-output reconciliation
Goods not returned	Examine Section 143 time limit/consequence

Critical distinction

A movement-documentation lapse does not automatically prove that the underlying purchase was fictitious.

But the taxpayer must prove the underlying transaction independently.

5. JUDICIAL SUPPORT: BOTH SIDES MATTER

Boron Rubbers India v. Union of India — Gujarat HC, 27 March 2025

The Court dealt with a job-work movement where the movement documentation existed but there was a deficiency relating to vehicle details in Part-B of the EWB.

On the facts, the lapse was treated as technical and relief was granted against the substantial detention/penalty consequences.

Lesson: A genuine movement supported by substantial documentation should not automatically be treated as tax evasion merely because of a technical EWB defect.

But do not overread this judgment.

Where basic documents and movement evidence themselves are absent, the taxpayer's position is much weaker.

The practical distinction:

Genuine goods + genuine job work + identifiable movement + technical defect

≠ No challan + no EWB + no receipt + no processing trail

6. HOW TO DEFEND A GST NOTICE

If the Department says:

“No valid EWB → purchase bogus → ITC inadmissible.”

Answer each issue separately:

i. PURCHASE

PO + invoice + supplier + payment + commercial rationale.

ii. RECEIPT

Direct-delivery instruction + transport + job-worker acknowledgement + quantity.

iii. JOB WORK

Production + consumption + wastage + scrap + output.

iv. EWB

Was it required? What exactly was defective?

v. CONSEQUENCE

Does that specific lapse legally justify ITC denial, or is it a separate movement/documentation issue?

Never allow a procedural allegation to silently become a factual finding that no goods existed.

7. THE 7-POINT CFO SOP

Before movement

1. Identify supplier + job worker + destination
2. Issue principal's challan
3. Check EWB requirement
4. Verify vehicle/destination/document details
5. Obtain job-worker receipt
6. Track batch/coil/roll/quantity through processing
7. Monthly reconcile purchase → job worker → output → sale/export

Red flags requiring immediate escalation:

Missing challan | Missing EWB where required | No job-worker acknowledgement | Quantity mismatch | Unexplained wastage | Unreconciled job-worker stock | No output trail

8. THE ONE-MINUTE DEFENCE TEST

Before claiming/defending ITC on direct job-work purchases, ask:

Can we prove all five?

1. Why was the supplier asked to deliver elsewhere?

2. Did the job worker actually receive the goods?

3. Can the goods be physically/quantitatively traced?

4. Was the job work actually performed?

5. Can the finished output be linked back to the purchase?

If the answer is yes, the business has a substantially stronger factual foundation.

If the answer is no, an EWB dispute can become much larger than an EWB dispute.

THE BOTTOM LINE

Goods not entering the principal's factory does not automatically mean ITC is wrong.

GST law expressly recognises direct dispatch to a job worker.

But direct job work is not documentation-free.

The challan, e-way bill where applicable, movement trail, job-worker receipt, processing records and quantity reconciliation must tell one consistent story.

And if the Department alleges: “No EWB, therefore bogus purchase.”

the correct response is not simply:  “EWB is procedural.”

It is:  “First examine the genuine purchase, statutory direct-delivery model, actual receipt, job-work processing and complete goods trail. Then determine the precise consequence of the movement-documentation lapse under the applicable provision.”

SAVE THE FREIGHT. NEVER SAVE THE DOCUMENTATION.

In GST litigation, the strongest evidence is not where the invoice says the goods went. It is the reconciled trail showing where the goods actually went.

CARO 2020 for FY 2025-26 The Ultimate Applicability & Trigger-Point Matrix

 By CA Surekha S Ahuja

CARO does not begin with 21 clauses. It begins with one question: Does CARO apply?

CARO 2020 is issued under Section 143(11) of the Companies Act, 2013 and applies from FY 2021-22 onwards.

For FY 2025-26, the practical approach is:

APPLICABILITY → LAW → TRIGGER → THRESHOLD, IF ANY → EVIDENCE → EXCEPTION → REPORTING

The key mistake is treating CARO as a tick-box exercise or assuming every clause has a monetary threshold.

Some clauses are transaction-based, some event-based, some compliance-based, and some require auditor assessment.

1. FIRST TEST — DOES CARO APPLY?

CARO does not apply to:

Company	Position
Banking company	Exempt
Insurance company	Exempt
Section 8 company	Exempt
One Person Company	Exempt
Small company	Exempt
Specified qualifying private company	Exempt

A Nidhi company or NBFC is not automatically exempt merely because it is a Nidhi/NBFC. Their specific CARO provisions are contained in Clause 3(xii) and Clause 3(xvi) respectively.

2. SMALL COMPANY — THE FY 2025-26 TEST

The limits were increased with effect from 1 December 2025:

Parameter	Limit
Paid-up share capital	≤ Rs.10 crore
Turnover	≤ Rs.100 crore

The Rs.100 crore turnover test is based on turnover as per the P&L for the immediately preceding financial year. Accordingly, for FY 2025-26, the turnover considered is FY 2024-25.

The company must also satisfy the exclusions in Section 2(85), including that it is not a holding company, subsidiary company, Section 8 company or company/body corporate governed by a special Act.

In short:

Paid-up capital ≤ Rs.10 crore

AND

FY 2024-25 turnover ≤ Rs.100 crore

AND

No Section 2(85) exclusion

→ Small company → CARO exempt

3. PRIVATE-COMPANY EXEMPTION — ALL CONDITIONS MUST BE MET

A private company which is not a small company may still be exempt under CARO paragraph 1(2)(v).

All conditions are cumulative — AND, not OR.

Condition	Requirement
Paid-up capital + reserves & surplus	≤ Rs.1 crore at balance-sheet date
Bank/FI borrowings	≤ Rs.1 crore at any point during FY 2025-26
Total revenue	≤ Rs.10 crore during FY 2025-26
Status	Not a holding/subsidiary of a public company

If even one condition fails → this exemption is lost.

4. IF CARO APPLIES — FIND THE TRIGGER

Clause	What should trigger your review?	Key threshold / test
3(i)	PPE/intangibles, physical verification, title deeds, revaluation, benami property	10% applies to specified discrepancies/revaluation tests
3(ii)	Inventory and working-capital limits	10% class-wise inventory discrepancy; WC limits >Rs.5 crore
3(iii)	Loans, advances, guarantees, securities	>90 days overdue; also test terms, evergreening and demand/no-term loans
3(iv)	Transactions covered by Sections 185/186	Compliance test
3(v)	Deposits / deemed deposits	Compliance test
3(vi)	Section 148 cost-record requirement	Applicability + maintenance
3(vii)	Statutory dues	Undisputed dues >6 months; disputed dues separately
3(viii)	Previously unrecorded income admitted/surrendered in tax proceedings	Recording in books
3(ix)	Borrowings	Any default, wilful defaulter, utilisation/end-use and group-funding tests
3(x)	IPO/FPO/debt instruments or private placement/preferential allotment	Utilisation + statutory compliance
3(xi)	Fraud / Section 143(12) / whistle-blower complaints	Nature and amount / consideration
3(xii)	Nidhi company	Nidhi-specific requirements
3(xiii)	Related-party transactions	Sections 177/188 + disclosures
3(xiv)	Internal audit	Section 138 applicability + reports considered
3(xv)	Non-cash transactions with directors/connected persons	Section 192
3(xvi)	RBI/NBFC/HFC/CIC matters	Registration / regulatory requirements
3(xvii)	Cash losses	Current FY + immediately preceding FY
3(xviii)	Auditor resignation	Reasons/issues considered
3(xix)	Going-concern uncertainty	Liabilities existing at BS date falling due within 1 year
3(xx)	Unspent CSR	30 days / 6 months, depending on category
3(xxi)	CARO qualifications/adverse remarks in components	CFS reporting

5. THE NUMBERS THAT MUST NOT BE CONFUSED

Number	Where it belongs
Rs.10 crore / Rs.100 crore	Small-company test
FY 2024-25	Turnover year for FY 2025-26 small-company test
Rs.1 crore / Rs.1 crore / Rs.10 crore	Private-company CARO exemption
10%	Specific PPE/inventory/revaluation tests
Rs.5 crore	Working-capital limits — Clause 3(ii)(b)
90 days	Overdue loans — Clause 3(iii)(d)
6 months	Undisputed statutory dues — Clause 3(vii)(a)
1 year	Liability period relevant to Clause 3(xix)
30 days / 6 months	Unspent CSR transfers

These are not universal CARO materiality thresholds.

6. THREE CRITICAL TRAPS

90 DAYS ≠ GENERAL BORROWING DEFAULT

3(iii)(d): loan/advance overdue more than 90 days

3(ix)(a): any default in repayment of borrowings or payment of interest

6 MONTHS ≠ ALL STATUTORY DUES

3(vii)(a): undisputed dues outstanding more than six months

3(vii)(b): disputed dues — report amount and forum; no six-month test

Rs. 5 CRORE ≠ CARO APPLICABILITY

The Rs.5 crore threshold belongs only to Clause 3(ii)(b) for working-capital limits secured by current assets.

It does not determine whether CARO applies.

7. THE SIMPLE CARO WORKING-PAPER FORMULA

For every clause:

LAW → TRIGGER → THRESHOLD, IF ANY → FACTS → EVIDENCE → EXCEPTION → REPORTING

Use one simple working-paper structure:

Clause	Trigger	Threshold, if any	Facts	Evidence	Exception	Conclusion
3(ii)(b)	WC limits secured by current assets	>Rs. 5 crore	Rs___	Sanctions/statements	___	___
3(iii)(d)	Loan overdue	>90 days	Rs___	Ageing/confirmations	___	___
3(vii)(a)	Undisputed statutory dues unpaid	>6 months	Rs___	Returns/challans	___	___
3(ix)(a)	Borrowing default	No minimum threshold	Rs___	Bank confirmations	___	___
3(xvii)	Cash loss	Current + preceding FY	Rs___	Computation	___	___
3(xix)	Material uncertainty	Liabilities due within 1 year	Rs___	Cash flow/ageing	___	___

THE BOTTOM LINE

CARO is not a 21-clause tick-box exercise.

For FY 2025-26:

FIRST — Does CARO apply?
SECOND — What triggers the clause?
THIRD — Is there a prescribed threshold?
FOURTH — What does the evidence establish?
FINALLY — What must the auditor report?

The real CARO discipline is not “Applicable / Not Applicable”. It is “Why applicable, what triggered it, what evidence supports it, and what exactly has to be reported?”

That is the CARO decision matrix an audit team can actually use.

Monitor or LED Wall: 40% or 15% Depreciation? A Judicial Decision Matrix with GST

 By CA Surekha S Ahuja

A ₹9–10 lakh monitor, LED wall or video wall may look like a simple fixed asset. Tax classification, however, can make a substantial difference.

The question is whether it belongs in the computer block at 40% or plant and machinery at 15%.

On a ₹10 lakh asset, that is a difference of ₹2.50 lakh of depreciation in the first-year illustration.

The answer cannot be determined from the invoice description. It depends on the functional role, technical integration and commercial purpose of the display.

The decisive question is not whether a computer controls the display, but whether the display itself forms an integral part of the computer system. 

The law in one table

Under Section 33 of the Income-tax Act, 2025, read with the prescribed depreciation schedule:

Classification	Rate	₹10 lakh illustration
Computers including computer software	40%	₹4,00,000
General machinery and plant	15%	₹1,50,000
Difference	25%	₹2,50,000

Illustrative only; actual depreciation depends on the relevant block, acquisition date, period of use and other adjustments.

The judicial decision matrix

This is where the classification should actually be decided.

Judicial principle	What the case establishes	Application to a modern display	Decision signal
CIT v. BSES Yamuna Powers Ltd., 358 ITR 47 (Delhi)	A computer peripheral can receive the computer rate where it forms an integral part of the computer system	A separately purchased monitor can still qualify; physical separation is not decisive	40% if functional integration is established
DCIT v. Datacraft India Ltd.	A computer is a system, not merely a CPU; integrated input/output and communication components can form part of it	Supports a system-based rather than component-based analysis	40% where the display is genuinely part of that system
CIT v. GE Capital Business Process Management Services Pvt. Ltd.	Monitors and computer-related equipment must be examined according to their actual character	Strong support for ordinary computer/workstation monitors	40% for genuine computer monitors
Hyderabad Race Club v. ACIT	A large electronic display used for computer-generated race information was accepted as a computer monitor on the facts	Demonstrates that size, cost and public/commercial installation do not by themselves defeat 40%	40% possible even for a large display where integration is proved
Principle from the contrary line of reasoning in cases involving independent display equipment	An asset does not become a computer peripheral merely because a computer controls it	Directly relevant to advertising LED walls and independent digital-signage systems	15% where the display is an independent commercial apparatus

The combined judicial principle

The cases, read together, support a much more useful rule than simply asking whether the asset is called a monitor:

A peripheral is part of the computer system because of its functional integration, not merely because it receives a computer signal.

That distinction is critical for today's large-format displays.

Apply the matrix to the actual asset

1. CCTV command-centre display

Typical architecture:

Cameras → Network → NVR/VMS → Server → Surveillance software → Display

If the display is an integral part of the computerised surveillance environment and is used to:

• monitor multiple feeds;
• receive and act upon alerts;
• review recordings;
• interact with VMS software; and
• perform the command-centre function,

the BSES Yamuna + Datacraft + Hyderabad Race Club principles provide a strong basis for considering the display within the computer block.

Likely position: 40% — where technical integration is demonstrated.

The case weakens considerably if the display is simply a large screen receiving an output signal from an otherwise independent DVR/NVR.

2. Mall advertising LED wall

Typical architecture:

Advertising software → Media player → Controller → LED panels

Here, the LED wall is ordinarily the commercial advertising asset.

The computer/media player:

• stores content;
• schedules advertisements;
• controls playlists; and
• sends the signal.

The LED wall itself performs the revenue-generating display function.

Likely position: 15% — generally the safer classification.

This is the key distinction:

If the display is...	Position
An integral output component of the computer system	40% case strengthens
An independent advertising/signage apparatus controlled by a computer	15% case strengthens

What about a ₹10 lakh video wall or digital signage system?

The name is irrelevant.

Asset / actual function	Likely depreciation position	Why
Ordinary workstation monitor	40%	Conventional computer peripheral
Monitor forming part of an integrated computer system	40%	BSES Yamuna principle
Large computerised command-centre display	40% may be supportable	Function can outweigh size
CCTV display integrated with VMS/server	40% may be supportable	Integral computer-system output
Mall advertising LED wall	15% generally safer	Independent commercial display
Advertising video wall controlled by media player	15% generally safer	Computer is controller, not the display system
Independent digital-signage platform	15% generally defensible	Display performs the commercial function
Mixed installation	Component-wise	Different components may have different characters

There is no “LED wall rate”. There is a functional classification.

One Rs10 lakh invoice may contain several assets

A modern installation may comprise:

LED panels + server + media player + controller + software + networking + mounting + cabling + installation.

It is therefore dangerous to assume that the entire ₹10 lakh automatically takes one rate.

Component	Possible treatment
Server	Computer block, subject to facts
Computer monitor	Computer block
Independent LED panels	Plant and machinery
Software	Applicable computer/software treatment
Media player	Fact dependent
Controller	Fact dependent
Networking equipment	Fact dependent
Mounting structure	Separate examination
Installation/cabling	Analyse with underlying asset

For a composite system, component-wise capitalisation may provide the more defensible tax position.

GST: a separate decision

The depreciation classification does not determine GST classification.

A display can have:

40% depreciation + 18% GST

or

15% depreciation + 18% GST.

Display equipment generally falls under HSN heading 8528, subject to the precise product and tariff entry. Commercial display products are generally subject to 18% GST, but the exact HSN and rate should be verified from the technical specifications and applicable notification.

GST issue	Practical approach
Monitor/display	Examine HSN 8528 and exact specifications
LED/video wall	Verify precise tariff classification
Controller/media player	Examine separately
Installation	SAC or composite-supply analysis
Permanent incorporation	Examine works-contract implications
ITC	Apply Sections 16 and 17, including restrictions

Do not copy the vendor's HSN blindly.

The ITC–depreciation check

If a ₹10 lakh display carries ₹1.80 lakh GST and the GST is eligible for ITC:

ITC claimed → recoverable GST should not also form part of depreciable cost.

This follows from the interaction of Section 16(3) of the CGST Act with income-tax depreciation.

The practical control is simple:

Invoice → GST return/ITC → fixed-asset register → depreciation schedule

should all reconcile.

What evidence decides the 40% claim?

For a high-value display, the fixed-asset register should not merely say:

“Monitor — 40%.”

The file should establish the functional integration through:

Evidence	What it proves
Technical datasheet	What was actually purchased
System architecture	How the display fits into the system
Server/VMS/software details	Computer-system dependency
Controller/media-player details	Nature of control
Purchase order and invoice	Scope of acquisition
Commissioning report	Actual configuration
Photographs	Physical use
Component-wise breakup	Separate asset identification
Actual-use note	Commercial function
Classification memo	Reason for 40% or 15%

The most important document may be a one-page classification note:

“Why is this display an integral computer peripheral rather than an independent commercial display?”

If the file cannot answer that question convincingly, a 40% claim becomes difficult to defend.

Final professional decision rule

40% - Where the display is functionally integrated with and forms an essential output/interaction component of the computer system.

15%- Where the display is an independent commercial apparatus, and the computer merely stores, schedules, transmits or controls its content.

Component-wise -Where the ₹10 lakh installation comprises servers, software, controllers, LED panels, networking and structural components having different functional characteristics.

The conclusion that matters

The judicial authorities do not support:  Every monitor = 40%. 

Nor:  Every LED wall = 15%.

They support a functional test.

A standard computer monitor ordinarily belongs to the computer block.

A large CCTV/control-room display can also qualify where its integration with the computerised system is demonstrable.

A standalone advertising LED wall is generally better regarded as plant and machinery, even though a computer controls what appears on it.  The decisive distinction is therefore:

Computer system using a display ≠ computer controlling a display.

And for a Rs.10 lakh asset: 

Do not let the invoice description decide the depreciation rate. Let the system architecture, actual function and documentary evidence decide it.

The invoice tells you what was purchased. The architecture tells you what it is for tax purposes.

The Invoice Is Not Enough: Tax Scrutiny in 2026 and Why Commercial Rationale Is the New Tax Evidence

 By CA Surekha S Ahuja

Why Businesses Must Start Documenting the “Why” Behind Every Significant Transaction

“An invoice proves that a transaction occurred. Commercial rationale proves why the transaction deserved to be accepted.”

For years, businesses considered a transaction tax-ready if they had:

✓ A proper invoice
✓ Accounting entry
✓ Payment proof
✓ Supporting documents

But the nature of tax scrutiny is changing. The next generation of tax verification is moving beyond checking whether a document exists. The bigger question is becoming: “Does the complete business story behind this transaction make sense?”

The New Tax Reality: Documentation Is No Longer Enough

A transaction may have:  

✓ Valid invoice
✓ GST compliance
✓ Banking trail
✓ Correct accounting treatment

Yet still attract questions if the business cannot explain:

• Why was this transaction required?
• Why was this particular vendor selected?
• How was the amount determined?
• What business benefit was received?
• Who approved the decision?
• Why was this tax treatment adopted?

The missing element is often not a document. It is commercial rationale.

The Shift From “Proof of Payment” to “Proof of Purpose”

Traditional tax defence focused on: Invoice + Payment = Expense Support

Modern tax defence requires: Business Need + Commercial Decision + Evidence Trail + Correct Tax Treatment

This is a fundamental change in how businesses should approach tax governance.

Why This Matters in 2026

Today, tax authorities have access to a much wider information ecosystem:

• Income Tax Return data
• AIS and information statements
• GST filings
• TDS records
• Financial statements
• MCA filings
• Banking information
• Third-party reporting

A transaction may be viewed from multiple angles. The risk arises when:

The accounting entry says one thing, but the surrounding data tells another story.

The Three Layers of a Defensible Tax Position

A strong tax position requires three separate validations:

Layer	Key Question
Legal validity	Is the tax treatment permitted under law?
Accounting accuracy	Is it correctly recorded?
Commercial justification	Does the business logic support it?

Most businesses focus heavily on the first two. The third layer is increasingly becoming decisive.

Where Businesses Need Stronger Commercial Documentation

1. Related Party Transactions

A related party transaction is not automatically problematic. The risk arises when the business cannot demonstrate: 

• Genuine business purpose
• Reasonable pricing
• Actual services or benefits received
• Independent commercial justification

A simple agreement may not be enough.  The file should explain: Why was this transaction necessary for the business?

2. Consultancy and Professional Fees

Large consultancy payments often have invoices and agreements.

However, scrutiny may focus on:

• Scope of services
• Deliverables received
• Expertise provided
• Business impact

The question is not: “Was payment made?”

The question is: “Did the business receive value equivalent to the payment?”

3. Year-End Expenses and Adjustments

Many tax positions are created during financial year closing:

• Provisions
• Exceptional expenses
• Write-offs
• Large purchases
• Advances
• Adjustments

A journal entry completes accounting. It does not complete tax defence.

4. Cross-Border Transactions

International transactions require consistency between:

Area	Key Requirement
Income Tax	Correct tax position
FEMA	Regulatory compliance
Transfer Pricing	Commercial pricing support
Agreements	Clear contractual basis
Payments	Documentary trail

One transaction should not have different stories under different regulations.

The CFO Question Has Changed

Earlier:  “Do we have the documents?”

Now:  “Can we explain the decision behind the documents?”

Before approving any significant transaction, management should ask:

✓ What business problem does this solve?
✓ Why was this structure/vendor/arrangement selected?
✓ How was the value determined?
✓ What evidence will remain five years later?
✓ Can someone outside the organisation understand the rationale?

Building a Commercial Rationale File

For significant transactions, businesses should maintain:

Component	Purpose
Business justification note	Explains necessity
Approval trail	Establishes decision-making
Agreement	Defines responsibilities
Pricing basis	Supports value determination
Deliverables/evidence	Proves actual benefit
Tax analysis	Supports tax treatment

This converts tax compliance from a year-end activity into a continuous governance process.

The New Tax Audit Mindset

Old Approach:

Find documents after receiving a notice

↓

New Approach:

Create defensible evidence when the transaction happens

Professional Insight

The future of tax compliance will not be determined only by how correctly a business calculates tax.

It will depend on how convincingly it can explain the commercial reality behind those calculations.

The strongest businesses will not simply maintain records.

They will maintain defensible transaction stories.

Final Takeaway

The invoice is important. But an invoice only answers: “What happened?”

Tax scrutiny increasingly asks: “Why did it happen?”

In the new tax environment: Commercial rationale is becoming the bridge between a transaction and its tax defensibility.

Businesses that start documenting the “why” today will be far better prepared for the scrutiny of tomorrow.