Indian cryptocurrency traders are now facing a new wave of scrutiny by the government. The Income Tax Department issued Section 148A notices for all the transactions during the 2021–22 financial year. The move targets traders who bought, sold, or held Bitcoin, Ethereum, and other virtual digital assets (VDAs) before the crypto tax rules were introduced.
These notices are not final tax demands but are ‘show-cause’ requests, asking taxpayers to explain potential unreported income. Recipients usually have 7 to 30 days to respond. If explanations are inadequate, the department can reopen assessments, potentially adding tax, interest, and penalties. The notices are creating concern, especially among traders who believed that reporting under general income rules was sufficient at the time.
The department is leveraging automated data-matching tools to track crypto activity. Systems such as the Insight Portal and CRIU cross-check PAN-linked records, including KYC data from exchanges, bank transactions, trading volumes, and filed ITRs. In some cases, notices treat the total turnover as taxable, even if actual profits were much lower, for example, a Rs. 1.6 crore turnover could be flagged even if profit was only Rs. 4 lakh to Rs. 5 lakh.
The 2021–22 financial year predates India’s dedicated crypto tax framework. Before April 2022, crypto gains were taxed under general business or capital gains rules. Taxpayers were exempted from the flat 30% tax, TDS, or mandatory reporting format. This has left gaps that the department is now addressing.
Notices are primarily aimed at high-volume traders with multiple wallets or those who underreported or didn’t file returns. Social media posts show redacted examples of notices, showing that many traders from FY 2021–22 could be affected. Even smaller traders may be targeted if discrepancies appear in Annual Information Statements.
The new notices highlight the government’s intention to enforce compliance on past crypto transactions while maintaining a strict current framework. Traders now face pressure not only to address previous reporting gaps but also to adapt to new crypto tax regimes. Transparency and documentation are essential to avoid penalties.
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