Over 44,000 income tax notices on crypto have been issued to Indian taxpayers in the past two years, according to enforcement data cited across Indian dailies. Many assume these notices were sent only to people who hid income or failed to pay tax. That is not always the case.
Some taxpayers had filed their returns on time, reported their crypto gains, and paid the tax due, yet still received notices because the figures in their ITR did not match the transaction data available to the Income Tax Department (ITD). The problem was often not unpaid tax but a mismatch between what exchanges reported and what taxpayers disclosed in their returns.
Three traders on Indian tax forums represent this problem in three distinct forms. One received a defective return notice on a filing that was arithmetically correct. One was confused about the ITR form they should fill because an exchange appeared in Form 26AS under a legal entity name they had never heard of. Another received a mismatch intimation after their refund had already been processed and assumed it was a scam.
In each case, the same unannounced collision between two reporting systems was responsible, and the resolution required understanding something the ITD’s notice never explained.
How the Gap is Created Before Anyone Makes a Mistake
When an Indian crypto exchange processes a sell transaction, Section 194S requires it to deduct 1% TDS and report the gross sale value of the transaction to the ITD. Not the profit, not the gain above acquisition cost, but the full amount the buyer paid. This figure flows into Form 26AS under the deductor’s legal entity name.
When a trader files Schedule VDA in their ITR, they report the net taxable gain: sale proceeds minus acquisition cost. This is the correct figure to declare. It is also, almost always, significantly smaller than the gross sale value in Form 26AS.
The ITD’s Central Processing Centre in Bengaluru compares these two figures automatically. It has no built-in mechanism to understand that one is gross proceeds and the other is net income. It sees a gap and flags it.
Let’s consider what this looks like for a single trade:
Particulars | AIS / Form 26AS | ITR (Schedule VDA) |
Gross sale value | ₹11,604 | Not reported separately |
Acquisition cost | Not available | ₹10,000 |
Taxable value shown | ₹11,604 (gross transfer value) | ₹1,604 (taxable gain) |
TDS | ₹116 | ₹116 claimed as credit |
The ₹10,000 difference represents the acquisition cost. On its own, the exchange-reported sale value does not explain that deduction. That is why taxpayers should reconcile their Schedule VDA, AIS, and Form 26AS before filing.
Case 1: The ₹10,000 that was Never Missing
On r/IndiaTax, a taxpayer posted a screenshot of a defective return notice under Section 139(9). Their Schedule VDA showed ₹1,604 in capital gains. Their Form 26AS showed ₹11,604 attributed to their PAN under Section 194S. The notice asked them to explain the ₹10,000 discrepancy.
However, there was no actual discrepancy. The difference arose because Form 26AS and Schedule VDA report crypto transactions in different ways, something many taxpayers are unaware of.
The exchange had reported the gross sale proceeds: ₹11,604, the full amount received from the sale. The trader had reported the taxable gain: ₹1,604, which is the profit above the ₹10,000 acquisition cost. Both figures were accurate. Neither system had told the trader the other number existed, or that the matching engine would compare them without understanding the difference.
Here is what the correct filing looked like, and what the notice response needed to show:
Component | Amount |
Sale proceeds (gross, per Form 26AS) | ₹11,604 |
Cost of acquisition | ₹10,000 |
Taxable gain under Section 115BBH | ₹1,604 |
Tax at 30% | ₹481.2 |
4% health and education cess | ₹19.25 |
Total tax liability | ₹500.45 |
TDS already deducted at 1% | ₹116.04 |
Net payable | ₹384.41 |
The trader had filed and paid correctly. The fix was a response to the defective notice through the e-Proceedings tab on the income tax portal, clarifying that Schedule VDA had correctly reported the net gain, that the ₹11,604 in Form 26AS represented gross proceeds not additional income, and that the ₹116 TDS credit had been properly claimed.
The notice was resolved. The trader had done nothing wrong from the first filing.
Case 2: The ITR-1 Filer Who Did Not Know Crypto Required ITR-2
A salaried user noticed TDS entries in Form 26AS from a company called Neblio Technologies after selling a small amount of Bitcoin on CoinDCX. The TDS amount was minor, and the user said the sale had generated no profit. They did not recognise the deductor name, assumed it might be an error, and wanted to know whether they could still file ITR-1 along with their salary income.
The confusion stemmed from the fact that Neblio Technologies is the registered legal entity operating CoinDCX. The Form 26AS entry was neither an error nor a fraud flag. It reflected CoinDCX’s obligation to deduct and report TDS under Section 194S whenever a VDA transfer takes place.
That single entry also changed the taxpayer’s filing requirements. ITR-1 does not include Schedule VDA. Anyone who has transferred a VDA during the financial year, even if the trade generated no profit or only a nominal amount, must generally file ITR-2 or ITR-3, as applicable. Because many Indian exchanges report transactions under their legal entity names rather than their brand ones, taxpayers who fail to recognise these names can easily overlook entries that affect their choice of ITR form.
The rule is simple: if Form 26AS shows any Section 194S entry against your PAN, you cannot file ITR-1; you must file ITR-2. Also, declare the VDA transaction in Schedule VDA, even if the gain is negligible.
TDS
Case 3: The Refund Arrived, then the Notice Did Too
Here, the trader filed his ITR and received his refund. He had not received any email. An SMS arrived from a sender code he did not recognise, CMCPCI-G, telling him the ITD had identified a significant mismatch between what he filed and what their records showed for FY 2024-25, and that he had until December 31 to revise.
CMCPCI-G is the ITD’s verified sender code for AIS-related compliance communications, issued by the Central Processing Centre in Bengaluru. The message was genuine. The deadline was binding. The mismatch was real, and it followed the same pattern as the first case: his exchange had reported gross sale proceeds to the AIS, his ITR had reported the net taxable gain, and the automated matching system had flagged the difference as potential under-reporting.
What made this case particularly disorienting was the sequence: the refund had already been processed and the trader had mentally closed the matter. The reason this happens is that exchanges file their TDS returns on a quarterly cycle, and the AIS updates accordingly. A return filed in July may be reconciled against exchange data that arrives in September, after the refund has already been issued. Alas, the processed refund is not a signal that the assessment is complete.
Where the Problem Starts
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Across all three cases, the notice did not arise because the trader had done anything dishonest. It happened because, before filing, they never had a single view showing both the gross value reported by the exchange to the ITD and the net gain reported in the ITR.
Most crypto investors in India calculate their Schedule VDA figures either from memory or from an exchange export. Neither of these sources shows what ultimately appears in Form 26AS or AIS. The exchange export shows your transaction history. Form 26AS and AIS show what the exchange reported to the Income Tax Department. They serve different purposes, and differences between the two are what often trigger compliance notices.
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Connect your exchange and wallet accounts to KoinX through the Integrations page to automatically import your complete transaction history.
This is where KoinX helps. Instead of relying on exchange exports alone, KoinX brings together your transaction history, Section 194S TDS entries, and Schedule VDA calculations in one place before you file your return.
Review both your gross sale values and taxable gains before filing your ITR.
KoinX shows both the gross sale value and the taxable gain, making Schedule VDA reporting easier.
KoinX, trusted by over 1.5 million users across 100+ countries with 800+ exchange and wallet integrations, imports your complete transaction history and produces a Schedule VDA report built from the same underlying data that flows into the ITD’s AIS. Its TDS reconciliation feature maps every Section 194S entry in Form 26AS against the corresponding trade, identifying each exchange’s legal entity name automatically so “Neblio Technologies” is already resolved to CoinDCX before the filing begins.
Generate a Schedule VDA Report on KoinX with Section 194S TDS reconciliation before filing your ITR.
Generate your Form 26AS TDS reconciliation and Schedule VDA report on KoinX before filing.
Paying Tax and Filing Correctly are Not the Same Thing
The three cases highlight different points where crypto tax reporting can go wrong. One involved a mismatch between the figures reported by the exchange and those reported in the ITR. Another centred on an unfamiliar legal entity name in Form 26AS. The third showed that a processed refund does not necessarily mean the ITD’s reconciliation process is complete.
What connects them is the absence of a single view, before submission, where both the exchange-reported figures and the ITR-reported figures could be compared side by side. The ITD’s automated system performs that reconciliation after you file. The real lesson from all three cases is that taxpayers should perform the same reconciliation before they submit their return.
