A trader deployed less than ₹1 lakh in capital, traded actively, and ended the year at a loss. He filed his ITR reporting ₹72,451 in crypto income before the deadline and considered it done. Then his Annual Information Statement (AIS) arrived.
The AIS showed ₹11,43,078 in receipts from the transfer of Virtual Digital Assets (VDAs), and shortly afterward, the Income Tax Department (ITD) issued a system-generated notice asking him to explain the discrepancy of more than ₹10 lakh.
The trader had not hidden income or skipped filing. He had simply discovered, too late, that filing crypto taxes correctly in India is far more complicated than most crypto retail traders realise.
The mismatch arose because the ₹72,451 reported in the trader’s ITR reflected the actual taxable income, whereas the ₹11.43 lakh shown in the AIS reflected the cumulative transaction volume. The mismatch between the two figures triggered the automated notice.
Later, the trader posed a question, “Do I need to reply to them or just ignore it?”
The chartered accountants who responded were unanimous on two things:
1. You cannot ignore it.
2. This is not a case of fraud, but a case of two systems counting the same activity in ways that produce almost unrecognisable numbers. Most traders only discover the gap exists after the ITD has already seen both.
Understanding how that gap is created is essential to understanding why compliant traders are increasingly receiving mismatch notices.
In FY 2024-25, 49 out of every 100 Indian crypto traders ended the year in a net loss, according to KoinX’s India Crypto Tax Story 2025, drawn from anonymised data across nearly 7 lakh users. Even India’s Income Tax e-Filing portal handled nearly 300,000 VDA-related help desk queries during the financial year, as per KoinX’s tax statistics research. This significant volume indicates widespread difficulty among taxpayers in accurately completing crypto tax disclosures and reconciling reporting requirements.
Why does the AIS number look shockingly bigger?
It’s important to note that the ITR and the AIS measure different aspects of crypto activity, and understanding that difference is key to understanding why automated crypto tax notices are now being issued even to compliant traders. The ITR reports net taxable income after adjusting for acquisition cost, while the AIS records the gross value of every crypto sale or transfer reported by exchanges under Section 194S.
When you file Schedule VDA, you report net income: sale proceeds minus acquisition cost, across every disposal in the year. If you bought a token for ₹8,000 and sold it for ₹7,000, that ₹1,000 loss is part of the picture. If you then used that ₹7,000 to trade up to ₹9,000, your reportable gain is ₹2,000 Net. The ITR reflects what you made.
When the AIS records your activity, it records movement. Every sale, every disposal, every transfer of a VDA is logged at its full sale value, without netting for cost and without any visibility into whether the same rupee was reused across ten subsequent trades. It records the money that moved, not what you made on the movement.
Try to understand that a trader may start with just ₹1 lakh, but if that same capital is used repeatedly across hundreds of buy-and-sell trades, the AIS records every sale separately. Over time, the reported transaction volume can swell into several lakhs, even if the trader made little profit or ended the year in a loss. If a trader starts with ₹1 lakh and executes 200 buy-and-sell cycles over a year, which is entirely normal for an active retail trader, each sell transaction appears as a separate receipt in the AIS. Those 200 buy-and-sell cycles, averaging ₹5,700 each, produce ₹11.4 lakh in AIS volume, regardless of whether the year ended in profit or loss. The AIS cannot see that those ₹5,700 receipts went straight back into the next purchase every single time.
Notably, this is unlikely to be a glitch. The AIS was designed to surface cases where reported income does not match observed financial activity, even though many such mismatches are ultimately innocent.
What Section 194S Built, Without Anyone Noticing
Before the Finance Act 2022, the ITD depended largely on self-reported figures for crypto income. Mismatches only surfaced during manual scrutiny. Most traders never encountered the system’s view of their activity at all.
Section 194S changed the architecture completely. By mandating 1% TDS on crypto transfers and requiring Indian exchanges to deduct, file, and report that TDS to the government, the Finance Act created a transaction-level paper trail that flows directly into AIS and Form 26AS, is updated continuously, and is cross-referenced against every PAN number active on every FIU-registered exchange.
The practical effect of this change is that the ITD now has your receipts before you file your return. Every sale on CoinDCX, WazirX, or CoinSwitch is visible in the department’s system before the trader opens the ITR portal. The Schedule VDA income figure the trader enters is matched automatically against the pre-existing record, and any meaningful gap triggers a flag without human review.
Most retail traders do not know this. The YouTube tutorials that the trader in question followed taught the right answer to the question “What do I report?” But these tutorials did not address the second question: the system is always asking simultaneously, “Does what you reported match what we already counted?”
Why the Gap is Larger Than Traders Expect
There is a further complication that pushes the AIS figure even higher than traders anticipate, and it is specific to how most Indian retail traders actually operate.
Most active traders are not on a single exchange. They hold positions across CoinDCX for rupee trading, Binance for altcoin exposure, WazirX for specific pairs, and personal wallets for DeFi activity. Each exchange reports its transaction data to the ITD independently. The AIS aggregates them all. The trader, meanwhile, reports based on whatever summary their primary exchange provides, often missing secondary platform activity entirely.
The result is an AIS figure that is not just larger than net income but also than the trader’s own estimate of their gross volume, because they never had a consolidated view. Crypto activity is scattered across multiple exchanges and wallets, while the AIS aggregates every reported transaction under the same PAN into one cumulative number.
The solution, therefore, is not to ignore the mismatch but to reconcile it properly before filing or before responding to a notice. Traders need a consolidated transaction-level view that brings together activity across all exchanges, calculates the actual acquisition cost of each trade, and explains how the gross AIS figure translates into the much smaller net taxable income reported in Schedule VDA.
This reconciliation is what allows a trader to demonstrate that the apparent mismatch is not undisclosed income, but the difference between gross transaction volume and actual taxable gains.
What you see | What the ITD sees |
Your primary exchange summary | All transactions across every compliant exchange |
Net gains after costs | Gross receipts with no cost netting |
One platform’s TDS certificate | TDS aggregated from every exchange on your PAN |
Your estimated trading volume | Every reported disposal at full sale value
|
How KoinX Helps Traders Resolve AIS Mismatches
Sign up on KoinX to reconcile your AIS, TDS, and Schedule VDA in one place.
In cases like this, tax experts at KoinX recommend starting with a complete trade-by-trade reconciliation before responding to the notice. The platform combines transaction histories across exchanges, calculates the actual Schedule VDA income, maps TDS deductions against AIS entries, and connects users with crypto-specialised CAs who help prepare and review the response before submission.
When the full transaction history is imported and mapped correctly, the ₹11.4 lakh AIS figure and the ₹72,000 ITR figure sit in the same document, derived from the same trades, with the relationship between them visible line by line. The gap does not disappear. It becomes explainable, and an explainable gap is the difference between a response that closes the matter and a response that escalates it.
Here is what the trader’s reconciliation looks like in simplified form.
Metric | Amount |
Total gross sale receipts (AIS figure) | ₹ 11,43,000 |
Total acquisition cost of all sold assets | ₹ 11,15,549 |
Net taxable income for Schedule VDA | ₹ 27,451 |
TDS deducted at 1% by exchanges | ₹ 11,430
|
Both ₹11.4 lakh and ₹27,000 are visible. The table that connects them is the document a CA submits in response to the ITD’s communication, alongside formal AIS feedback through the portal, marking the entries as correctly understood.
Before the ITD Asks, Not After
Over 1.5 million users across 100+ countries use KoinX, a global crypto tax platform with integrations across 800+ exchanges and wallets. For traders moving between CoinDCX and WazirX, Binance, and multiple wallets, the platform reconstructs the entire transaction trail into a single tax view that most exchanges never provide.
While the AIS records gross receipts, KoinX records what actually happened on each trade.
From the same trading data, KoinX calculates both the gross VDA transfer value that appears in the AIS and the actual taxable income that belongs in Schedule VDA of the ITR, helping traders understand why the two numbers often look dramatically different. Its TDS reconciliation system also tracks every 1% deduction across exchanges and maps it against AIS records, surfacing mismatches and missing credits before they turn into notices, filing errors, or refund delays.
The output is the reconciliation document itself, ready before the ITD asks for it rather than assembled under pressure afterward.
The trader’s situation is a preview of what filing without consolidated records looks like in a system that has already counted everything. The only variable is whether you find out through preparation or through a flag. Generate your AIS reconciliation and Schedule VDA report on KoinX before your next filing.
With the July 31 filing deadline approaching, understanding what the ITD can now track and how scrutiny is triggered has become increasingly important. For deeper insights, see the crypto tax audit triggers guide and How to Avoid Tax Audits in India.”
In FY 2024-25, 49 out of every 100 Indian crypto traders ended the year in a net loss, according to KoinX’s India Crypto Tax Story 2025, drawn from anonymised data across nearly 7 lakh users. Even India’s Income Tax e-Filing portal handled nearly 300,000 VDA-related help desk queries during the financial year, as per KoinX’s tax statistics research. This significant volume indicates widespread difficulty among taxpayers in accurately completing crypto tax disclosures and reconciling reporting requirements.
