Crypto ITR Alert: Reconcile Your Income and Update Your ITR Before Receiving a Notice

Introduction

If you traded or invested in cryptocurrencies or other Virtual Digital Assets (VDAs) during the last two financial years—FY 2022–23 or FY 2023–24—it’s important to review your Income Tax Return (ITR) carefully. The Income Tax Department has started issuing crypto tax notices to thousands of taxpayers whose crypto income may have been incorrectly reported or not disclosed at all. This move is part of an intensified effort to curb non-compliance related to Virtual Digital Assets.

By leveraging data from crypto exchanges and TDS filings, tax authorities are flagging mismatches between reported crypto income and what was disclosed in ITRs. Even if your involvement in crypto trading or investing was minimal, taking action now is essential. Below is what you need to know—and the steps you should take immediately—to avoid penalties, notices, or further scrutiny.

Who Is Receiving Crypto ITR Notices—and Why?

Taxpayers who traded or invested in cryptocurrency but did not report their gains correctly are now receiving Crypto ITR notices from the Income Tax Department. These notices are being issued based on mismatches between Income Tax Returns and third-party data sources such as:

TDS deducted under Section 194S
Annual Information Statement (AIS)
Form 26AS
Transaction data reported by crypto exchanges

If your crypto income disclosed in the ITR does not align with this data, your return may be flagged for verification or scrutiny.

Why You Must Review Your ITR Immediately

Cryptocurrency transactions are under heightened tax surveillance. The Income Tax Department now routinely cross-verifies ITR disclosures with data reported by:

Crypto exchanges (Virtual Asset Service Providers or VASPs)
TDS filings under Section 194S
Annual Information Statement (AIS)
Form 26AS

Any mismatch between your actual crypto transactions and what you’ve reported in your ITR can result in a tax notice or scrutiny proceedings.

Example:
An investor traded multiple cryptocurrencies during FY 2022–23 and earned profits of ₹1.8 lakh. Believing small gains were not taxable, they filed their ITR without reporting crypto income or filling Schedule VDA. However, the exchange deducted ₹1,800 as TDS and reported it to the department. This discrepancy appeared in the AIS and led to a notice for underreporting income.

Are You at Risk? Ask Yourself

You may be exposed to scrutiny if any of the following apply to you:

You bought, sold, traded, or received cryptocurrency or NFTs in the last two financial years
You filed your ITR without completing Schedule VDA
You underreported or omitted crypto profits
You claimed deductions that are not permitted (such as expenses, indexation, or loss set-off)
TDS was deducted on your crypto transactions

If you answered “yes” to any of these, you should review your tax filing immediately.

Note for NRIs:
Even non-residents may be liable for Indian tax under Section 115BBH if crypto transactions were conducted through Indian exchanges or in INR.

What the Law Says About Crypto Taxation

Under the Finance Act, 2022, income from Virtual Digital Assets is governed by Section 115BBH. Key provisions include:

Tax rate: 30% flat on gains from crypto transfers
TDS: 1% under Section 194S for transactions exceeding ₹10,000 per year
Deductions: Only cost of acquisition allowed
Loss set-off: Not permitted against any income
Carry forward of losses: Not allowed
Reporting: Mandatory disclosure in Schedule VDA of the ITR

Failure to comply with these rules is a common reason for notices.

What You Should Do Right Now

1. Review Your Filed ITR

Was all crypto income reported?
Was Schedule VDA filled correctly?
Was tax applied at the correct 30% rate?

Missing or incorrect disclosure is a major red flag.

2. Download AIS and Form 26AS

These documents show what third parties have reported:

Go to My Account → AIS
Review crypto-related entries
Check for TDS under Section 194S

If TDS appears in AIS or Form 26AS but corresponding income is missing from your ITR, it may trigger a notice.

3. Reconcile with Exchange Data

From your crypto exchange accounts:

Download transaction statements
Calculate gains for the relevant year
Match profits, transaction values, and TDS with your ITR

Consistency across records is critical.

4. File an Updated Return (ITR-U), If Needed

If you discover errors or omitted income, you can file an Updated Return under Section 139(8A) within 24 months from the end of the assessment year.

Additional tax payable:

25% of additional tax and interest if filed within 12 months
50% if filed between 12–24 months

Voluntary correction can significantly reduce future penalties.

5. Keep Proper Documentation

Maintain the following records:

Exchange transaction statements
Crypto wallet records
TDS certificates (Form 16A)
Gain and tax calculation sheets

These are essential in case of verification or scrutiny.

What Happens If You Ignore This?

Non-reporting or incorrect reporting of crypto income may lead to:

Scrutiny notices under Section 143(2)
Reassessment proceedings under Section 148
Interest under Sections 234A/B/C
Penalties under Section 270A (50%–200% of tax shortfall)
Prosecution under Section 276C in serious cases

Even small or occasional investors are not exempt if discrepancies are detected.

Quick Compliance Checklist

Download ITR, AIS, and Form 26AS
Match crypto income and TDS with exchange data
File an Updated Return if required
Seek professional help if unsure

Acting early can help you avoid unnecessary stress, penalties, and legal complications.

How the CBDT Is Monitoring Crypto Compliance

The Central Board of Direct Taxes (CBDT) is using advanced data analytics under its NUDGE (Non-intrusive Usage of Data to Guide and Enable) initiative. Through this program, the department sends targeted alerts to taxpayers who may have underreported income from Virtual Digital Assets. These notices are part of a broader effort to improve compliance, curb tax evasion, and ensure accurate disclosure of crypto income.

How Auriga Accounting pvt. ltd. Can Help

Auriga Accounting pvt. ltd. assists taxpayers with:

Crypto income reconciliation
Filing Updated Returns (ITR-U)
Reviewing AIS and TDS data
Ensuring compliance with Section 115BBH

Whether you’re unsure how to calculate crypto gains or how to respond to a notice, our tax experts can help you stay compliant and avoid future issues.

About the Author

Ravi

Ravi breaks down complex legal requirements into clear, actionable steps, helping entrepreneurs remain compliant and build sustainable businesses with confidence.

January 8, 2026