Crypto ITR Notice: Reconcile Your Income & Update ITR Before You Get a Notice

If you've traded or invested in cryptocurrencies or other Virtual Digital Assets (VDAs) in the last two financial years (FY 2022–23 or 2023–24), it's time to double-check your Income Tax Return (ITR). The Income Tax Department has begun issuing Crypto tax Notices to thousands of individuals whose crypto-related income may have been misreported—or not reported at all. These notices are part of a growing crackdown on Virtual Digital Asset (VDA) non-compliance.

Using data from crypto exchanges and TDS filings, the tax authorities are identifying cases where crypto income does not match with what was disclosed in the ITR. If you're involved in crypto trading or investment, even casually, here's everything you need to know and do right now to avoid penalties or scrutiny.

Who Is Receiving Crypto ITR Notices—and Why?  

Taxpayers who traded or invested in cryptocurrency but failed to report their gains correctly are receiving Crypto ITR notices from the department. These notices are based on mismatches between ITR filings and third-party data like TDS under Section 194S, AIS reports, and exchange records.  

Why You Should Review Your ITR Immediately

Cryptocurrency transactions are now under strict tax surveillance. The Income Tax Department is actively matching your ITR disclosures with data reported by:

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

If there is a mismatch between what you’ve earned or transacted in crypto and what you’ve declared in your ITR, you may receive a tax notice or be selected for scrutiny.

Example: An investor bought and sold multiple cryptocurrencies in 2022–23 and made profits of ₹1.8 lakh. They assumed small gains don’t need to be reported and filed their ITR without Schedule VDA. Their exchange deducted ₹1,800 as TDS and reported it. This triggered an alert in AIS, and the taxpayer was served a notice for underreporting income.  

Are You at Risk? Ask Yourself These Questions

• Did you buy, sell, trade, or receive cryptocurrency or NFTs in the last two years?
• Did you file your ITR without filling Schedule VDA?
• Did you underreport your profits from crypto trading?
• Did you claim deductions that are not allowed (like expenses, indexation, or set-off of losses)?
• Did you receive or make crypto payments where TDS was deducted?

If you answered "yes" to any of the above, it’s time to re-examine your tax filing.

Note for NRIs: Even if you’re a non-resident, income earned or transactions made through Indian exchanges or in INR may attract Indian tax liability under Section 115BBH.  

What the Law Says About Crypto Taxation

As per the Finance Act, 2022, crypto income is subject to special tax rules under Section 115BBH of the Income Tax Act. Here's a quick summary:

Many taxpayers unknowingly or deliberately ignore these rules, leading to non-compliance.

Click here to learn more about Crypto Taxation

What You Need to Do Immediately

1. Check Your ITR for Crypto Reporting

Log in to the Income Tax e-Filing Portal and open your filed ITR for AY 2023–24 or 2024–25.

• Did you report all crypto income?
• Did you fill out Schedule VDA properly?
• Did you report profits using a flat 30% tax, or did you apply lower rates incorrectly?

If the ITR is missing crypto income, it's a red flag.

2. Download AIS and Form 26AS

These statements reflect what third parties (like crypto exchanges) have reported about your transactions. You can download both from the e-filing portal:

• Go to My Account > AIS
• Review crypto-related entries
• Check for any TDS credits under Section 194S

If there’s TDS showing up in AIS or Form 26AS but no corresponding income in your ITR, the mismatch can trigger a notice.

3. Reconcile with Exchange Reports

Log into your crypto exchange accounts and:

• Download your transaction statements
• Calculate gains/losses for the relevant financial year
• Reconcile those figures with what was declared in your ITR
• Make sure your buy/sell value, profit, and TDS match your ITR records.

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

If you've identified errors or missed income, you can still correct them using Section 139(8A) by filing an Updated Return (ITR-U). This return allows you to voluntarily declare omitted income within 24 months from the end of the assessment year.

Filing an ITR-U requires payment of additional tax:

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

5. Maintain Proper Documentation

Even if you've filed everything correctly, maintain:

• Crypto wallet statements
• Exchange trade ledgers
• TDS certificates (Form 16A from exchanges)
• Calculation sheets for gains and taxes

These can be essential in case of future questions or verification.

What Happens If You Ignore This?

Failure to report or correct crypto-related income can lead to:

• Scrutiny Notices (Section 143(2))
• Income Reassessment (Section 148)

If discrepancies are found, taxpayers may face interest under Section 234A/B/C, penalties under Section 270A (50%–200% of tax shortfall), and even prosecution under Section 276C in cases of willful concealment. Even small investors or casual traders are not exempt if TDS or third-party data exposes a mismatch.

Final Checklist

Before the tax department flags you, here’s your quick action plan:

• Download ITR, AIS, and Form 26AS
• Review crypto-related income and TDS Match with your exchange records
• File an Updated Return if needed
• Consult a tax expert if unsure

Being proactive now can save you from serious issues later.

How the CBDT is Monitoring Crypto Compliance

The Central Board of Direct Taxes (CBDT) is actively leveraging data analytics and a strategy called the “Non-intrusive Usage of Data to Guide and Enable” (NUDGE) program to promote tax compliance. Under this initiative, the Income Tax Department is sending targeted alerts and reminders—especially to those who failed to report income from Virtual Digital Assets (VDAs) like cryptocurrency. These notices are part of a broader effort to detect underreporting, prevent money laundering, and ensure that all taxpayers disclose crypto income in accordance with the Income Tax Act. If you’ve received an email or notice from the department, it’s likely due to this data-driven enforcement mechanism.

How IndiaFilings Can Help

 At IndiaFilings, we assist thousands of taxpayers in:

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

Even if you're unsure how to calculate or declare your crypto income, our tax experts will help you stay fully compliant and avoid future legal hassles.

Get Started!

FAQs: Crypto Traders – Reconcile Income & Update ITR

Do I need to report crypto income in my ITR?

Yes, as per Section 115BBH of the Income Tax Act, all gains from crypto trading must be reported in your ITR under Schedule VDA.

What happens if I forget to include crypto income in my ITR?

The Income Tax Department may issue a notice or initiate scrutiny based on mismatches with AIS, Form 26AS, or TDS reports.

What is Schedule VDA in the ITR?

Schedule VDA is a dedicated section in the ITR form to report income from Virtual Digital Assets like cryptocurrencies and NFTs.

Is crypto taxed differently from other income?

Yes, crypto gains are taxed at a flat 30% without any deductions (except cost of acquisition) and cannot be set off against other losses.

What is the penalty for not declaring crypto income?

Penalties may include interest, scrutiny notices, reassessment, and in serious cases, prosecution for tax evasion.

Can I correct my ITR after filing?

Yes, you can file an Updated Return (ITR-U) within 24 months under Section 139(8A) if you missed reporting crypto income.

How does the tax department track my crypto transactions?

Through TDS filings (Section 194S), data from crypto exchanges (VASPs), Form 26AS, and your AIS (Annual Information Statement).

Do I need to pay TDS on crypto transactions?

Yes, if your crypto transactions exceed ₹10,000 in a year, 1% TDS must be deducted and reported.

Can I deduct exchange fees or internet costs from crypto gains?

No, under Section 115BBH, no deductions except the cost of acquisition are allowed for crypto income.

How can IndiaFilings help with crypto tax compliance?

IndiaFilings offers expert services for crypto income reconciliation, ITR-U filing, TDS analysis, and full compliance support under Section 115BBH.