India’s Income Tax Department is sending Section 148A notices to people who traded crypto during FY 2021-22. The notices are being issued to individuals who bought, sold, or held assets such as Bitcoin [BTC], Ethereum [ETH], or any other crypto during that period, and they are being asked to explain possible unreported income.
This has caused concern across the crypto community because the scrutiny is not limited to large investors alone. Even people with relatively small profits are being flagged.
In many cases, the department is looking at total buying and selling volumes rather than actual net gains, which means small investors can also come under review if the transaction data appears inconsistent with what was reported.
A Section 148A notice is a show-cause notice issued when the tax department believes income may have escaped assessment. The notice asks the taxpayer to explain the transactions or the reporting gap, usually within a response window of 7 to 30 days.
If the explanation is not considered satisfactory, the department can reopen the assessment for FY 2021-22. That can lead to additional tax liabilities, along with interest and penalties.
This is because it was a period before India introduced its formal crypto tax framework. Before April 1, 2022, crypto gains were taxed under general tax principles, usually as business income or capital gains. At that time, there was no flat 30% tax on crypto gains, no dedicated reporting category, and no 1% TDS mechanism.
That lack of a clear structure led to inconsistent reporting. Some people may have underreported their gains, while others may have misclassified their activity altogether.
The Income Tax Department is using automated systems such as the Insight Portal and CRIU to match PAN-linked information across multiple channels. This includes KYC details submitted to crypto exchanges, bank transaction records, trading volumes reported by platforms, and the income tax returns filed by individuals.
The tracking process relies on a combination of records, including:
One of the key concerns is that the system may flag total transaction volume as potential income rather than actual profit. That creates risk for smaller investors or active traders whose turnover looks large on paper but whose actual profit is much lower.
For example, a trader with annual turnover of ₹1.6 crore but only ₹4-5 lakh in profit. Even in such a case, the full transaction amount may cause scrutiny. This explains why notices are not limited to people who made very large gains. A person can be flagged simply because the trading activity reflected in exchange and bank data does not align clearly with what appears in tax filings.
Notices are mainly targeting traders and investors who were active during FY 2021–22. This includes people who reported high trading volumes on domestic or international exchanges, those who did not file income tax returns, and those who may have underreported crypto transactions.
Individuals using multiple exchanges or wallets are also more exposed to reporting gaps. The more fragmented the activity, the harder it may have been to report it consistently. Even non-filers for Assessment Year 2022-23 are being flagged.
This scrutiny is not limited to one type of platform. If someone traded on Indian exchanges such as Mudrex, or on international platforms, they could still receive a notice. The central issue is not where the trade took place, but whether the activity can be connected to the taxpayer through exchange records, PAN-linked data, KYC, and bank trails.
Traders cannot assume that activity on foreign platforms sits outside the view of tax authorities if linked records exist elsewhere.
The current enforcement is in line with India’s crypto tax framework. Since FY 2022–23, gains from VDAs have been taxed at a flat 30% under Section 115BBH, along with surcharge and 4% cess. For top earners, the effective rate can go significantly higher.
In addition, the rules do not allow broad loss adjustments, and a 1% TDS applies to most transactions. This has changed trading behavior, with substantial volume moving to offshore platforms.
The government has already issued over 44,000 notices related to undisclosed crypto income and has recovered substantial amounts. The latest Section 148A notices are part of a continuing effort rather than an isolated action.
New rules effective April 1, 2026, add to the story. These include daily penalties of ₹200 and fines of up to ₹50,000 for inaccurate reporting by crypto platforms.
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