Many crypto investors only realised there was a reporting issue after filing their tax return. In FY 2022 to 2023, around 6.45 lakh investors had TDS deducted on their crypto transactions, yet only 1.39 lakh reported that income in their ITRs. As a result, a large number of crypto transactions remain unmatched in the Income Tax Department’s records, even though TDS was already deducted.
This gap exists because crypto tax reporting is more complicated than many investors expect. And it is common to assume that TDS settles the entire tax liability or that small trades do not need to be reported. However, the rules work differently, and these misunderstandings have left many investors with incomplete tax returns despite having no intention of avoiding tax.
To help you out, KoinX has partnered with Mudrex to simplify the correction process. If you missed reporting crypto income in an earlier return, you can still fix it by filing an ITR-U. Taking action now can help you correct past filings before they become a larger compliance issue.
What is ITR-U?
ITR-U, or Updated Return, lets a taxpayer voluntarily correct a return already filed, or file one that was missed entirely. It exists so that honest mistakes, like income left out or a wrong deduction, get fixed before a tax notice arrives, not after.
You can file ITR-U under Section 139(8A) of the Income Tax Act. As per this section, you can file ITR-U up to 4 financial years from the year currently being filed. So, for someone filing for FY 2025-26, ITR-U can still be used to correct FY 2021-22, FY 2022-23, FY 2023-24, or FY 2024-25 returns.
Now that you know what an ITR U is, let us look at the common mistakes that lead investors to file one.
4 Most Common Crypto Tax Filing Mistakes That Lead to ITR-U
Most people who end up filing an ITR-U didn’t try to hide anything. They made one of the below few common assumptions about how crypto tax rules work, assumptions that felt reasonable at the time, but were not. Here are the four that show up most often:
TDS Was Already Deducted Hence Tax Was Paid
Many investors assume that once an exchange deducts 1% TDS on a trade, their tax obligations are complete. However, that is not the case. While TDS helps the Income Tax Department (ITD) track crypto transactions, it does not settle the tax due on your gains. Instead, you must still calculate the profit from the transaction and report it separately under Schedule VDA when filing your ITR.
Traded on a Foreign Exchange
Trading exclusively on foreign exchanges like Binance or Bybit often leads to the mistaken belief that the income falls outside Indian tax rules. However, the location of the exchange does not determine your tax liability. Instead, your residential status does. If you are an Indian resident, any crypto gains earned through overseas platforms remain taxable in India and must be reported under Schedule VDA.
Crypto-to-Crypto Swaps Were Not Taxable
Many traders assume that swapping one cryptocurrency for another is not taxable because no rupees are involved. However, Indian crypto tax law treats a crypto-to-crypto swap as the transfer of a virtual digital asset (VDA). As a result, any profit arising from the transaction is taxable, even if you never receive or withdraw fiat currency.
The Trade Was Too Small to Matter
Some investors skip reporting because a single trade or profit seems too insignificant to matter. However, the law does not provide a minimum threshold for reporting VDA transactions. As a result, every disposal must be reported individually. Even small unreported gains can accumulate over time, creating discrepancies that the ITD may identify during return verification.
The Budget 2026 Update on ITR-U Filing
Until this year, receiving a reassessment notice meant the ITR-U route was closed off entirely. The Finance Bill 2026 changes that for anyone caught in that exact situation. So here’s what changed for ITR-U under the 2026 Budget:
ITR-U Was Off the Table After a Notice
Under the earlier rule, once the tax department issued a notice under Section 148, an investor could no longer file an updated return to correct the disclosure. The only path left was to contest the reassessment through the regular assessment process, with no compliance shortcut available.
Finance Bill 2026 Reopens that Route
The Finance Bill 2026 removes this old restriction. This means taxpayers can now file ITR U even after a Section 148 reassessment notice has been sent, something that simply was not allowed before. However, this costs more than a routine updated return, since the additional tax is higher once a notice is already in the picture.
Even so, that higher cost buys real protection. Filing this way shields the disclosed income from the penalty under Section 270A, and that penalty is not small. It normally runs to 50% of the tax owed and can climb to 200% for deliberate misreporting.
While this amendment gives taxpayers another opportunity to correct past mistakes, the need to act early is becoming even more important. That is because the tax department’s visibility into crypto transactions is set to expand significantly over the next year.
What's Coming in 2027: Your Foreign Trades Stop Staying Hidden?
From April 2027, trades on foreign exchanges will stop being invisible to the ITD. This is courtesy of the Crypto-Asset Reporting Framework (CARF), a new international reporting system that will start feeding that data straight to the ITD. As a result, what once seemed like a reporting gap is becoming increasingly visible to the tax department.
What is CARF?
The CARF is an OECD framework that enables crypto exchanges to automatically share users’ transaction data across participating countries. India has committed to implementing CARF, with cross-border data exchange set to begin in April 2027. Meanwhile, the CBDT has already started domestic data collection under a notification issued in early 2026.
What Does This Mean for Foreign Exchange Users?
Once CARF becomes operational, crypto transactions on foreign exchanges such as Binance, Bybit, and Kraken will no longer remain outside the tax department’s view. Instead, this information will be shared automatically, making offshore trading activity significantly more transparent.
Why Does Filing an ITR-U For Past Crypto Transactions Matter Now More Than Ever?
If you missed reporting crypto transactions in a previous income tax return, waiting longer can increase your financial and compliance risks. With stronger reporting systems, AIS matching, and expanded tax department visibility, filing an ITR-U gives you an opportunity to correct past omissions before they attract further scrutiny. So, let’s understand how you can fix the undisclosed income mistake:
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Filing Voluntarily
Right now, the department mostly sees what Indian exchanges report through TDS, so foreign exchange activity often stays invisible. That gap narrows once CARF data arrives, and offshore trades left out earlier could turn into a mismatch. Filing ITR-U before that happens lets you correct things voluntarily. And this is treated far more favourably than a correction made after the fact.
The Cost of Waiting
Delaying a correction can meaningfully raise what you owe. If the ITD identifies under-reported income on its own, through reassessment or scrutiny, the resulting tax attracts a penalty of 50% under Section 270A, rising to 200% if the gap looks like deliberate misreporting. Moreover, in serious cases involving wilful tax evasion, prosecution and imprisonment under Section 276C may also apply.
How Has KoinX Helped with ITR-U Filing?
KoinX has worked through both sides of ITR-U filing with real investors, helping one resolve a notice already received while encouraging another file voluntarily before any notice showed up at all. Here’s what happened:
Case 1: Responding After a Notice
The Situation
An investor received a Section 133(6) notice from the ITD last financial year, questioning undisclosed crypto transactions, and reached out to KoinX for help.
How KoinX Helped?
KoinX arranged a call to explain why the notice was issued and what resolving it would involve, then generated the investor’s crypto tax report for that year and connected them with a partnered CA to file an ITR-U. The investor also opted into a dedicated KoinX plan, covering the formal reply to the notice.
The Outcome
The updated return and the notice reply were filed together, giving the investor a documented response instead of an unresolved notice on file.
Case 2: Responding Before a Notice
The Situation
Another investor came across forum discussions about Section 133(6) notices tied to undisclosed crypto income, learning this could reach back to FY 2021-22. Unsure whether their own filing was complete, they reached out to KoinX before any notice arrived.
How KoinX Helped?
KoinX generated the investor’s tax reports for the earlier year in question. As a precaution, the investor chose to disclose the full crypto income and gains through an ITR-U rather than wait to see if a notice would follow.
The Outcome
It has been a year since that filing, and no notice has arrived yet.
How to Avoid Filing Another ITR-U in the Future?
Correcting past filing mistakes is only part of the process. The next step is making sure every future crypto tax return is built on accurate transaction data, so you do not need to rely on an ITR-U again.
Reports for Every Past Year, Not Just For FY 2021-22
When a Mudrex account connects to KoinX, it does not just pull data for the current year. KoinX generates Complete Tax Reports for every financial year, across the full trading history, so an ITR-U for FY 2021-22 through FY 2024-25 draws from the same consolidated data instead of being rebuilt from scratch for each year separately.
Correct Treatment Applied Automatically
Every trade going forward gets classified the same way it should have been the first time. VDA transfers are taxed under Section 115BBH, TDS gets reconciled against the final computation, and futures activity is flagged separately as business income. Filing at year-end becomes a review of numbers already sorted, not a scramble to sort them.
So, if you traded crypto in FY 2021-22, FY 2022-23, FY 2023-24 or FY 2024-25 and are not certain your filing was complete, now is the time to check. Connect your Mudrex account to KoinX, and see exactly what your reports show for each of these years, and file an ITR-U for anything that is missing before the window narrows any further.
Correct Treatment Applied Automatically
Right now, filing an ITR-U for a missed Mudrex trade is still a voluntary correction the kind the ITD treats leniently. Once CARF data starts flowing to the ITD from April 2027, that same gap turns into a mismatch the department finds on its own, and the penalty math changes from 0% extra to 50-200% under Section 270A.
The KoinX-Mudrex integration exists to close that gap before it’s found rather than after. Sign up with KoinX, connect your Mudrex account, generate a Complete Tax Report for FY 2021-22 through FY 2024-25, and file the ITR-U for whichever year is missing. The correction takes an afternoon now. Waiting for a notice takes a lot longer and costs a lot more.
