If you’ve traded or invested in crypto recently, it’s likely you would have received an email from the Income Tax Department (ITD).
And you’re not alone.
Thousands of people are getting notices for not reporting their crypto income correctly in their ITR, particularly for FY 2022–23 and FY 2023–24.
Here’s what’s happening. 
Why are crypto traders getting notices from the Income Tax Department?
Since 1 April 2022, India has had clear rules on taxation of Virtual Digital Assets (VDAs) like crypto, NFTs, etc., under Section 115BBH of the Income Tax Act.
It states that:
- All gains from crypto trades are taxed at a flat 30%
- Crypto losses can’t be set-off against other incomes, or carried-forward to future years
- No expenses allowed against crypto income
Now here’s where the problem started.
To avoid paying such high taxes, many investors either didn’t report their crypto transactions at all, or reported them incorrectly.
Many skipped the Schedule VDA altogether — the section specifically meant for declaring crypto-related income. Instead, they reported the crypto income at a lower rate (like IFOS or capital gains from other assets), or claimed indexation and expense deductions.
Naturally, this hasn’t gone down well with the tax department.
How does the IT Department know?
Okay, crypto isn’t anonymous anymore, especially not to the ITD. And here’s how they are tracking your crypto transactions.
- So basically, all our trades go through Virtual Asset Service Providers (VASPs), or commonly called crypto exchanges like CoinSwitch, CoinDCX, ZebPay, and Mudrex.
- These exchanges are required to deduct 1% TDS on all crypto trades and file TDS returns with the ITD.
- And the ITD is now matching those TDS records with our ITR filings.
And when they did, they found a large number of people had crypto holdings over the past two years but never mentioned them in their ITRs. That’s why these emails are going out.
What should you do now?
If you’ve received any communication, don’t ignore it. The ITD is offering you a chance to voluntarily correct your return, and avoid future scrutiny or penalties.
You can do this by filing an Updated Return (ITR-U), and declare correct information in Schedule VDA of the income tax form.
Even if you haven’t received a notice, but forgot to report crypto income, or added it under anything except Schedule VDA, it’s wise to file an ITR-U and clean things up.
And if you’ve filed everything correctly, good job. But if the department flags you as a “high-risk” person, you may still be picked for scrutiny. So keep these documents handy, just in case:
- Crypto wallet statements
- Trade ledgers from exchanges
- TDS certificates (Form 16A) from exchanges
- Computation of gains, losses, and tax paid
TL;DR
Whether or not you’ve received a notice, here’s what to do:
- Review your ITRs for FY 2022–23 and FY 2023–24
- Make sure Schedule VDA was filled
- File an ITR-U if needed
- Keep relevant documents ready
Here’s a detailed guide on crypto taxation in India if you want to go know more.