Got an Income Tax Notice for Crypto? What to Do Step by Step
If you got an income tax notice for crypto: don't ignore it, read the section number and deadline, compare your trades with AIS/26AS, reply on the e-filing portal with your exchange statements, and file a revised or updated return if you under-reported. Crypto gains are taxed at a flat 30% (plus cess) with no loss set-off, and 1% TDS applies on transfers above the threshold.
A notice is not a punishment. In most cases it is a request to explain or correct something, and it has a deadline. This guide shows how to read the notice, reply to it and fix your records, in order.
About this guide: It is for Indian investors and traders who received an income tax notice for crypto or want to avoid one. You'll learn what triggers notices, how to identify yours, a 7-step reply method, how to file an ITR for crypto correctly, and the real penalties for ignoring one. It reflects Income Tax Department rules as of October 2026. It is general information, not personalised tax advice.
Why did you get a crypto tax notice?
These are the most common triggers:
Mismatch with AIS/26AS: TDS or sale data shows crypto activity, but your ITR shows none
Schedule VDA left blank or filled with the wrong figures
Wrong ITR form or missing return despite crypto transactions
Crypto-to-crypto swaps not reported. A swap is a taxable transfer even if you never withdrew to your bank
Losses set off against other income, which is not allowed
Unreported P2P or foreign-exchange activity
Large deposits that look unexplained when compared with declared income
Exchange reporting rules also tightened from April 2026 under the Income-tax Act, 2025, so the department now receives richer crypto transaction data than before.
Which notice did you get?
The section number printed on the notice tells you what it wants.
Notice | What it means | What you usually do |
Section 143(1) intimation | Your return doesn't match department data, so a correction is proposed | Accept, or disagree online with proof |
Section 139(9) | Your return is defective, often an incomplete Schedule VDA | Fix and re-file within the stated time |
Section 133(6) / 142(1) | The department is asking for information or documents | Upload statements and explanations |
Section 148A / 148 | The department suspects income has escaped assessment | Reply in the stated window, ideally with professional help |
Section 156 demand | You owe tax | Pay, or file for rectification if the demand is wrong |
The reply window is printed on each notice, and it often ranges from a few days to 30 days. Check yours first.
Crypto tax notice reply: 7 steps
Read the notice → Pull your data → Reconcile → Decide → Reply → Pay → Keep proof
Read the notice fully. Note the section, assessment year, deadline and what it asks for. Download the PDF from your e-filing account, not just the email.
Collect all your crypto records. Get trade history, deposit and withdrawal statements, and TDS certificates from every exchange you used, plus any wallet or P2P records.
Check AIS and Form 26AS. Log in to the e-filing portal and compare TDS entries and sale values against your records.
Rebuild your numbers. For each sale: gain = sale value − cost of acquisition. No other expense is allowed.
Decide your position. If you agree with the notice, accept it or file a revised or updated return. If you disagree, prepare a reply with proof.
Reply on the portal. Use "e-Proceedings" or "Compliance Portal" at incometax.gov.in. Attach statements and a short, factual explanation.
Pay and keep proof. Pay any tax and interest due, then save the acknowledgement, challans and your working sheet for at least 6 years.
Tip: Keep your reply short and factual. Attach evidence and avoid long arguments.
How to file an ITR for crypto trading in India
Gather statements → Check AIS → Pick form → Fill Schedule VDA → Pay tax → File and e-verify
Gather statements from every exchange and wallet.
Check AIS/26AS so your TDS credit and sale values match.
Pick the form: ITR-2 if you invest occasionally, ITR-3 if crypto trading is your business.
Fill Schedule VDA: date of acquisition, date of transfer, cost, sale value and income, entered per transaction.
Compute 30% tax and pay any balance as self-assessment tax. Claim your TDS credit.
File and e-verify within 30 days, or the return is treated as not filed.
Crypto TDS is explained in this TDS-on-crypto guide.
What happens if you ignore the notice?
Best-judgment assessment: the officer decides your income without hearing you
Penalty under Section 270A: 50% of the tax on under-reported income, or 200% for misreporting
Higher tax on unexplained money under Section 115BBE, at a punitive 60% rate
Interest and late fees for delayed filing or payment
Prosecution in serious cases of wilful concealment
Voluntary correction almost always costs less than a department-led assessment.
Crypto tax in India: pros and cons
Pros | Cons |
Clear, flat rule: 30%, no holding-period confusion | No loss set-off against any income, including other crypto |
Legal clarity: crypto is a recognised taxable asset | Only cost of acquisition is deductible, so fees and expenses don't count |
1% TDS creates a trail that helps you prove your trades | TDS can lock up capital for active traders |
Exchange data pre-fills much of your AIS | Mismatches trigger notices quickly |
Common mistakes to avoid
Reporting only withdrawals to your bank and skipping crypto-to-crypto trades
Using different cost methods across exchanges
Ignoring small P2P deals
Missing the notice email because it went to an old address
Replying without supporting statements
Conclusion
An income tax notice for crypto is a deadline-driven request for clarity, not an automatic penalty. Read the section, reconcile your trades with AIS/26AS, reply with documents, and fix your return if it was wrong. Keep clean records from now on, because the same data the department uses against you can also protect you.
For future trades, use an FIU-registered exchange with easy statement downloads. You can open a BuyUcoin account and keep your trade history in one place.
FAQs
How to report crypto income in ITR?
Report it in Schedule VDA of ITR-2 (investors) or ITR-3 (business income). Enter acquisition date, transfer date, cost, sale value and income for each transaction, and claim TDS credit from AIS/26AS.
What are the tax notices for crypto income?
The common ones are 143(1) (mismatch), 139(9) (defective return), 133(6)/142(1) (information requests), 148A/148 (income escaping assessment) and 156 (tax demand). The section number on the notice tells you which one you got.
How do I report cryptocurrency income on my income taxes?
Compute gain as sale value minus purchase cost, add the 30% tax and 4% cess, report it in Schedule VDA, pay any balance and e-verify the return. Don't net losses against other income.
What happens if you forgot to file crypto taxes?
File a belated return as soon as possible. The window generally runs to 31 December of the assessment year. Expect interest and a late fee. If a notice has already arrived, reply within its deadline. Penalties under 270A (50% or 200%) can apply for under-reporting.
How to calculate tax on cryptocurrency in India?
Formula: (sale value − cost of acquisition) × 30%, plus 4% cess.
Example: You bought crypto for ₹1,00,000 and sold it for ₹1,50,000.
Gain: ₹50,000
Tax at 30%: ₹15,000
Cess at 4%: ₹600
Total tax: ₹15,600
1% TDS already deducted on the sale (₹1,500) is credited against it
Losses can't be set off against other income. Surcharge may apply at higher income levels. See our full crypto tax guide for more examples.
Disclaimer: This article is for general information and isn't tax or legal advice. Tax rules change, so confirm the latest position on the Income Tax Department website or with a Chartered Accountant before acting. Crypto investment is subject to market risk.