A crypto income tax notice in India usually means one thing: what you reported in your return does not match what the department can see from platform data. The usual causes are crypto sales left out of the ITR, losses netted against gains, TDS not claimed, or VDA income filed in ITR-1, which cannot be used with VDA income. The department sees your trades through TDS entries in Form 26AS and AIS, and from 2026 through much more detailed exchange reporting.
What to do is also simple, even if it does not feel that way. Verify the notice is genuine by logging in to the income tax e-filing portal yourself, never through a link in an SMS or email. Read exactly what it asks for and by when. Pull your platform statements and your AIS. Then take it to a CA and respond within the time given. Almost every notice I have seen people go through gets fixed with the paperwork they should have kept anyway.
Why the department sees your trades
I will start with a memory. On roughly the third day of Unocoin's business, back in 2013, about 30 people from the tax department showed up at our office. We had two employees. That told me early that the state would always take a close interest in Bitcoin. Thirteen years later, the interest is the same. The tools are much better.
Today, the department has several ways to see crypto activity tied to your PAN:
- TDS. When you sell on an Indian platform, 1% TDS is deducted under section 194S (now section 393 under the Income-tax Act, 2025) against your PAN. That shows in Form 26AS and AIS. Every TDS entry is a record that a sale happened.
- AIS. Your Annual Information Statement shows platform data on your transactions. If AIS shows sales that your ITR does not, that is a mismatch.
- Section 285BAA. The Finance Act 2025, effective 1 April 2026, added a requirement for prescribed reporting entities, including exchanges, to furnish information on crypto-asset transactions.
- CARF. CBDT's guidance on the Crypto-Asset Reporting Framework, reported in July 2026, applies to transactions from calendar year 2026. Exchanges report acquisitions, disposals, crypto-to-crypto trades and transfers in rupees, in Form 167, by 31 May of the following year. This creates no new tax and no new filing duty for you, but your ITR disclosures should match exchange records.
There is context for why this matters. According to coverage of FIU-IND's annual report for 2024-25, tax authorities identified about ₹888.82 crore of undisclosed VDA income. The department is looking.
Common triggers
From what we see on the Schedule VDA guide, most problems come from a short list of mistakes:
- Leaving out small sales. People think a ₹3,000 sale does not matter. AIS shows it anyway.
- Netting losses against gains. VDA losses cannot be set off against any other income or carried forward, and a loss on one coin cannot reduce tax on a gain on another. If you reported net profit instead of each transfer, the numbers will not match.
- Forgetting to claim TDS. TDS that is not entered in the tax-paid section is not credited, which can create a demand that should not exist.
- Using ITR-1. Schedule VDA sits in ITR-2 and ITR-3. ITR-1 cannot be used with VDA income.
- Missing swaps and spends. Every transfer counts, including crypto-to-crypto swaps and spending crypto, not only sales for rupees.
What to do in the first week
Day 1: check it is real
Scammers send fake tax notices too. Do not click a link in an SMS, email or WhatsApp message. Open the e-filing portal yourself by typing the address, log in, and check whether the notice appears there. Nobody from the tax department will ask you for your OTP, your password, or your crypto seed phrase. Never share them. If someone threatens you over the phone and asks for money or codes, hang up. If you have lost money to a scam, call 1930 or file at cybercrime.gov.in as fast as you can.
Day 2: read what it actually asks
Not every notice is an accusation. Some ask you to confirm information. Some point out a mismatch. Some propose an adjustment. Note the section it is issued under, what it asks for, and the deadline to respond. Do not let the deadline pass.
Days 3 to 5: gather your records
- Annual statements from every platform you used in that year.
- Your Form 26AS and AIS for the year.
- Your filed ITR and its Schedule VDA, if you filed one.
- Purchase records showing your cost of acquisition for each coin you sold.
- Records of transfers to and from your own wallets.
Days 5 to 7: see a CA
Bring everything. Let the CA compare your return with the AIS line by line. Most mismatches are explainable. A transfer between your own wallets is commonly treated as not a sale, though that is a practitioner view, not a ruling. A sale you forgot is a sale you need to report. The CA will tell you which is which.
Revising a return, with a CA
If the CA finds you left something out, the fix is usually to correct the return through the route the law allows for your situation and timing. Whether that is a revised return, an updated return, or a response to the notice itself depends on your dates and the type of notice. That is not a decision to make from a blog. It is exactly what your CA is for.
What I will say clearly: the answer is never to hide anything. Do not move coins around to make records disappear, do not try to argue that sales on a registered platform did not happen, and do not ignore the notice. Those paths make things worse. Under the Finance Act 2025, VDAs were also brought into undisclosed income for block assessments, which tells you which way the rules are moving.
How to never get one again
This is the habit I would build, starting this year:
- Every April, download each platform's annual statement and your AIS on the same day.
- Match every sale, swap and spend against AIS.
- Match the TDS against 26AS.
- File in ITR-2 or ITR-3 with Schedule VDA, every transfer listed, losses not netted.
- Keep the records for years, not months.
- Have a CA check it before you file.
Because of CARF, from calendar year 2026 the exchange records and the department's data will be more detailed than ever. That is not something to fear if your return is honest. It means fewer surprises, as long as you report what happened.
For audit cases, CBDT has moved the ITR due date for AY 2026-27 to 21 November 2026, so if you are in that group, there is still time to file it properly the first time.
The calm view
Since 2013, the philosophy at Unocoin has been that you cannot run from the government. You deal with them. A notice is the department asking a question. Answer it with records, through a CA, on time, and most of the stress goes away.
Start by checking your return against the column-by-column walkthrough in the Schedule VDA guide. For the rules behind it, see the tax guide and how TDS on Bitcoin works.
Common questions
Why did I get a tax notice for crypto?
Usually because your ITR does not match platform data the department can see, for example sales missing from Schedule VDA, losses netted against gains, TDS not claimed, or VDA income filed in ITR-1. Read the notice on the e-filing portal and take it to a CA.
Does the income tax department track crypto?
Yes. TDS on sales shows in Form 26AS and AIS against your PAN, section 285BAA requires reporting entities to furnish crypto transaction information, and under CBDT's CARF guidance exchanges report 2026 transactions in Form 167.
What happens if I do not report crypto?
Unreported VDA income can lead to notices, tax demands and penalties, and the Finance Act 2025 brought VDAs into undisclosed income for block assessments. Report every transfer and check your return with a CA.
Can I revise my ITR to add crypto?
Depending on your dates and the type of notice, the law may allow a revised or updated return. Your CA decides the right route for your case.