Crypto Tax Notice – The Income Tax Department has sent notices to thousands of individuals for not reporting their cryptocurrency income for assessment years 2023–24 and 2024–25. According to a report by PTI, this action comes under the department’s Non-intrusive Usage of Data to Guide and Enable (NUDGE) initiative. The aim is simple: push taxpayers towards voluntary compliance without using force or harsh methods.
Many taxpayers have either skipped filing the mandatory ‘Schedule VDA’ or have misreported their gains from virtual digital assets (VDAs). These VDAs include popular cryptocurrencies like Bitcoin, Ethereum, and other tokens. Some individuals even used unaccounted funds to invest in crypto, which raised serious concerns about tax evasion and possible money laundering.
What the Law Says About Crypto Taxation
The law in India leaves no room for doubt. Under Section 115BBH of the Income Tax Act, introduced by the Finance Act 2022, income from VDAs gets taxed at a flat rate of 30%. This rate applies no matter how long someone holds the asset. The law does not allow deductions for anything except the cost of acquiring the crypto. Taxpayers cannot reduce this income by setting off losses against other gains or by carrying forward these losses to future years.
The government has also made sure it tracks crypto transactions closely. Section 194S of the Act mandates a 1% Tax Deducted at Source (TDS) on all crypto transactions. Exchanges or buyers must deduct this TDS when they make a payment or when a trade takes place. Failure to comply with TDS requirements could lead to serious consequences. As Sumit Gupta, Co-founder of CoinDCX, explains, “Crypto assets attract a flat 30% tax. TDS compliance is crucial—failure to deduct or deposit it could lead to penalties or even imprisonment.”
How to Report Crypto in Your Income Tax Return (ITR)
Reporting crypto gains in your ITR is not optional—it is the law. Taxpayers must take the right steps when filing:
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Choose the correct ITR form. If you treat crypto gains as capital gains, use ITR-2. If you treat them as business income, use ITR-3.
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Declare all types of crypto income. This includes gains from buying and selling crypto, staking rewards, mining proceeds, airdrops, and even payments received as salary in crypto.
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Check TDS details carefully. You must verify TDS credits in Form 26AS or your Annual Information Statement (AIS). Ensure that exchanges or buyers have deducted and deposited the TDS correctly.
The law does not allow shortcuts. Taxpayers cannot claim cost indexation for crypto gains. They also cannot adjust losses from crypto against other sources of income. Edul Patel, CEO of Mudrex, rightly points out, “Just like equity gains, crypto gains must be reported with equal seriousness.”
Why Use Compliant and Regulated Platforms
A large number of reporting errors happen because taxpayers use offshore exchanges or unregulated platforms. These platforms may not deduct the required TDS or may not provide a detailed transaction summary. Without proper records, taxpayers face difficulties during filing. They may even end up receiving notices for incorrect or incomplete reporting.
Investors should choose platforms that operate under Indian regulations. These platforms deduct TDS automatically at the time of the transaction. They also provide clear reports that help you during tax filing. Gupta highlights this point clearly: “To avoid filing errors, it’s best to use regulated Indian platforms that deduct TDS automatically and offer built-in tax reporting tools.”
The Department’s Approach: Encourage Voluntary Compliance
The Income Tax Department prefers to nudge taxpayers into compliance rather than take aggressive action. Through the NUDGE initiative, the department sends reminders and alerts based on data from exchanges, payment gateways, and other digital sources. It gives taxpayers a chance to correct mistakes before facing penalties or prosecution.
This method focuses on data-driven alerts rather than intrusive raids or investigations at the first step. Taxpayers who respond promptly to notices can avoid harsher consequences. However, ignoring these notices or failing to take corrective action can invite strict measures, including heavy fines or even legal action.
The Risks of Not Reporting Crypto Income
Failing to report crypto income can lead to more than just notices. If the department finds that a taxpayer willfully hid crypto gains, it can levy penalties that go up to 200% of the tax due. In some cases, the law also provides for prosecution, which can mean imprisonment. The law treats crypto income just like any other taxable income. The department can trace crypto activity through data from exchanges, banks, and financial intermediaries.
What Should Taxpayers Do Now?
Taxpayers who have received a notice must act quickly. They should:
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Review their crypto transactions. Pull out all trade records, staking rewards, mining income, and other crypto-related activity.
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Match transactions with TDS data. Check Form 26AS to ensure that TDS deductions match what exchanges reported.
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Revise the ITR if needed. If there was an error or omission, taxpayers should file a revised return before the deadline.
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Pay outstanding tax. If additional tax is due, pay it immediately along with interest to reduce penalties.
Those who have not received notices but failed to report should not wait. Filing a revised return before the department issues a notice is the safer and wiser option.
Key Takeaways for Crypto Investors
Crypto investors in India need to follow the law strictly. The rules are clear, and the tax department now has the data and tools to monitor crypto activity effectively. Here are some points that every investor should remember:
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Always declare all crypto income fully and correctly.
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Use compliant platforms that deduct TDS and provide clear records.
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Keep track of all transactions and reconcile them with Form 26AS or AIS.
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File the right ITR form and pay taxes on time.
Conclusion
The Income Tax Department’s recent action highlights the growing focus on crypto tax compliance. With the rise of digital assets, the government wants to ensure that tax revenue keeps pace with new sources of income. The 30% flat tax rate, the mandatory TDS, and strict reporting rules leave no room for ambiguity. Investors must report all crypto income, follow the law, and stay ahead of compliance requirements. This approach not only helps avoid legal trouble but also contributes to a fair and transparent tax system.
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