If you’ve just received an Income Tax notice for crypto transactions from FY 2021-22 or FY 2022-23, you’re probably wondering why the department is raising questions about trades you made years ago.
The reason is that Section 149 of the Income Tax Act, 1961 allows the Income Tax Department (ITD) to issue reassessment notices within 3 years from the end of the relevant assessment year and, in specified cases involving higher amounts of escaped income, up to 5 years. As exchange reporting, PAN-linked financial data, and transaction matching have improved, the department can now identify crypto transactions that were not reported, reported incorrectly, or require further verification.
These financial years also presented unique compliance challenges. FY 2021-22 and FY 2022-23 were before the introduction of the 30% Virtual Digital Asset (VDA) tax regime, Schedule VDA, and the 1% TDS rules. Many traders were also unsure about how to report crypto income, while others adopted tax positions that are now being reviewed.
The notices being issued today do not apply the newer crypto tax rules retrospectively. Instead, they examine whether your transactions complied with the general income tax provisions that were in force when those trades took place.
Hence, this article explains why these notices are arriving now, what commonly triggers them, what can ITD do while and after reopening past assessments, and the steps you can take to respond appropriately.
Key Takeaways
- Under Section 149, the ITD can legally reopen assessments up to five years after the end of the relevant financial year, FY 2021-22 remains open to scrutiny until AY 2026-27 in high-value cases
- Before April 2022, crypto had no dedicated tax framework, no Section 115BBH describing flat 30% rate, no Schedule VDA reporting, and no Section 194S TDS, and that led to inconsistent reporting
- The ITD’s Insight Portal now cross-references PAN-linked data across exchange records, bank credits, Form 26AS, and SFT filings, so mismatches from FY 2021-22 are now detectable
- A recurring ITD drafting error treats gross transaction turnover as taxable income, so a trader with INR 1.6 crore turnover and INR 4 to 5 lakh actual profit can receive a demand on the full turnover figure
- P2P trades without verified counterparty PAN face Section 68 unexplained credit risk, the entire transaction value, not just the gain, can be taxed at 60% along with a 25% surcharge on that tax.
- Filing an updated return under Section 139(8A) before a notice is issued substantially reduces both tax demand and penalty exposure
Why is the ITD Sending Crypto Notices for FY 2021-22 and FY 2022-23 Now?
The notices are not arbitrary. Each one is generated by a specific data mismatch between what the department holds about your activity and what you declared. Here are the four distinct reasons explaining why those mismatches are surfacing now, years after the original filing window closed.
The Reassessment Window is Still Legally Open
Under Section 149 of the Income Tax Act, 1961, the ITD has 3 years from the end of the relevant assessment year to issue a Section 148A show-cause notice. Where escaped income reaches INR 50 lakh or more, that window extends to five years, keeping FY 2021-22 open until 31 March 2027. Once the Section 148A process concludes, a formal Section 148 reassessment notice follows. Responding accurately at the show-cause stage can prevent that escalation entirely.
The Data Infrastructure Only Matured Recently
The ITD’s systems have become significantly more effective in recent years. Today, they can combine data from multiple sources, including:
- PAN-linked exchange records and TDS reports
- Form 26AS and the Annual Information Statement (AIS)
- Bank Statement of Financial Transactions (SFTs)
- Other compliance and risk-monitoring systems
Earlier, this information existed in bits and pieces. Now, it can be matched across sources to identify crypto transactions that may have been incorrectly reported or omitted.
The ITD is Acting Now Before the Window Permanently Closes
The five-year extended window for FY 2021-22 (AY 2022-23) closes on 31 March 2027. Once it shuts, the ITD loses all legal authority to reopen those assessments, regardless of what the data shows. That approaching deadline is directly driving the current notice volume. The department is not acting out of coincidence. It is working through its case list before the reassessment authority expires permanently.
Over 44,000 Notices Already Issued
The government has confirmed issuing over 44,000 notices related to undisclosed crypto income and has recovered substantial amounts in the process. From 1 April 2026, as per Section 446 of the Income Tax Act, 2025, an INR 200 per day penalty for late VDA transaction statements and an INR 50,000 fine for inaccurate reporting by crypto platforms. The current notice wave is not an isolated enforcement action, it is a continuing programme.
Why Were Crypto Taxes So Confusing Before FY 2022-23?
Many of the notices being issued today relate to mistakes made when India’s crypto tax rules were still evolving. Before April 2022, there was no dedicated tax framework for virtual digital assets. Instead, taxpayers had to rely on the existing provisions of the Income Tax Act, often leading to inconsistent reporting.
No Dedicated Crypto Tax Framework Existed
Before 1 April 2022, there wasn’t any Section 115BBH that taxed profits from cryptocurrencies, hence:
- There was no flat 30% tax on crypto gains
- No Schedule VDA existed in the ITR forms
- The 1% TDS under Section 194S had not been introduced
- Exchanges were not reporting crypto transactions through a dedicated PAN-linked TDS framework
As a result, taxpayers and tax professionals had to determine whether crypto income should be reported as capital gains or business income based on the nature of the activity. Different interpretations often led to different reporting positions.
Common Filing Mistakes Investors/Traders Made:
The absence of clear rules resulted in several reporting errors, including:
- Reporting active trading as capital gains instead of business income
- Omitting crypto-to-crypto trades while reporting only INR-based sales
- Not reporting crypto income at all because taxpayers believed it was not taxable or assumed that no TDS meant no reporting obligation
These gaps are now easier for the ITD to identify using consolidated financial and exchange data.
How the Income Tax Department Reviews These Cases?
The department is not applying the current crypto tax regime retrospectively. Instead, it examines whether your FY 2021-22 or FY 2022-23 transactions complied with the general income tax provisions that applied at that time. Depending on whether the issue involves misclassification, partial reporting, or non-reporting, the resulting tax demand and potential penalty consequences may differ.
What is Actually Triggering These Notices Now?
These notices are not arriving at random. Each one originates from a specific data mismatch that the Insight Portal flagged and the Non-Filer Monitoring System escalated. Therefore, knowing which trigger is behind your notice determines both the strength of the department’s position and the most effective response.
AIS Mismatch: When Exchange Data Does Not Match Your ITR
One of the most common triggers is a mismatch between your AIS and the crypto income reported in your ITR. The AIS combines PAN-linked information received from exchanges and other reporting entities. If your return omits crypto transactions or reports values that differ from the AIS, the case may be flagged for further verification.
Even for FY 2021-22, when Section 194S and the 1% TDS did not exist, exchanges still maintained KYC-linked transaction records that are now available to the department. The trigger is not the absence of TDS. It is the difference between exchange records and your tax return.
The Gross Turnover Problem: When Transaction Value is Mistaken for Income
Some notices treat the total value of crypto transactions as taxable income instead of calculating the actual profit. For example, a trader who bought and sold crypto worth INR 1.6 crore during FY 2021-22 but earned only INR 4 to 5 lakh in profit may receive a notice based on the entire transaction value.
Although this mismatch can be corrected, you must reconstruct your actual gains using transaction-level records, exchange statements, and supporting bank documents.
P2P Trades and the Section 68 Unexplained Credit Risk
P2P crypto transactions carry a risk that exchange-based trades generally do not. Since payments are received directly from another individual, the Assessing Officer (AO) may question the nature and source of the credit. If you cannot provide a satisfactory explanation, including the counterparty’s identity and PAN, the entire amount received may be treated as an unexplained cash credit under Section 68.
Such credits are taxed under Section 115BBE at 60%, along with a 25% surcharge on that tax, not 30% of the actual gain. A pattern reported from early 2025 enforcement actions highlights this risk.
In one Binance P2P case, a trader earned only INR 1,500 in profit but faced a total tax and penalty exposure of INR 78,000 because the counterparty’s PAN details could not be produced. The issue was not the profit earned, but the inability to explain the source of the credit.
Non-Filing and the Non-Filer Monitoring System
If you did not file an ITR for AY 2022-23 despite carrying out crypto transactions, the Non-Filer Monitoring System may automatically flag your case. When PAN-linked exchange activity exists but no return has been filed, the system can escalate the matter for reassessment.
Apart from reassessment proceedings, taxpayers may also face action under Section 276CC where the department concludes that the failure to file was deliberate.
Multi-Platform Fragmentation: When Wallet Transfers Look Like Income
Using multiple exchanges and self-custody wallets can also trigger notices. Transfers between platforms such as Binance, MetaMask, and CoinDCX may appear as separate credit entries if they are not correctly matched, even though no new income was earned.
To resolve this, you must establish the movement of the same asset using exchange CSV exports, wallet histories, and on-chain transaction hashes. The responsibility for proving that these were wallet transfers rather than fresh income rests with the taxpayer.
What the ITD Can and Cannot Do Under the Reassessment Window?
Receiving a notice is not a final tax demand. It is the beginning of a defined procedural sequence, one that includes obligations on both sides. Understanding the department’s legal limits within this sequence is essential for anyone deciding how to respond.
The 3-Year and 5-Year Windows: Which One Applies to You?
Whether the ITD can reopen your case depends on the amount of income believed to have escaped assessment.
- Up to INR 50 lakh of escaped income: The standard 3-year reassessment window applies. For FY 2021-22, this window closed on 31 March 2025 for issuing a Section 148A show-cause notice.
- INR 50 lakh or more of escaped income: The 5-year extended window applies. For FY 2021-22, this remains open until 31 March 2027.
This distinction becomes important where the department treats gross crypto turnover as escaped income instead of the actual profit.
Important To Note While the general reassessment limit is capped at 5 years and 3 months, if the ITD treats a cryptocurrency transaction or holding held on a foreign exchange (like Binance, Coinbase, etc.) as an undisclosed foreign asset, a completely different section or the Black Money Act could technically apply, which carries a much longer limitation window (up to 16 years). |
A Show-Cause Notice Must Come Before Any Reassessment
Before issuing a reassessment notice under Section 148, the AO must first issue a Section 148A show-cause notice explaining why they believe income has escaped assessment. The notice must include the information relied upon, and you may respond within the time specified.
After considering your reply, the AO passes an order under Section 148A(3), with the prior approval of the specified authority, deciding whether a Section 148 notice should be issued. This is your first opportunity to explain the facts, and a well-supported response can prevent reassessment proceedings from moving forward.
The Updated Return Option Under Section 139(8A)
Section 139(8A) allows taxpayers to file an updated return within 48 months from the end of the relevant assessment year. For FY 2021-22 (AY 2022-23), this option remains available until 31 March 2027.
However, there is an important restriction. Once a Section 148A show-cause notice has been issued after 36 months from the end of the relevant assessment year, you can no longer file an updated return for that year.
In practice, this means the opportunity for voluntary disclosure ends as soon as the notice is served. Filing an updated return before that stage attracts the additional tax payable under Section 140B, but it generally results in significantly lower exposure than responding after reassessment proceedings have begun.
What Should You Do If You Have Received a Notice for FY 2021-22 or FY 2022-23?
A Section 148A(b) notice is not a final demand. It is an opportunity, a defined window in which the taxpayer can present their position, correct factual errors in the department’s framing, and limit the assessment to the accurate tax liability. The steps below apply regardless of which trigger sits behind the notice.
Step 1: Read the Notice and Note the Response Deadline
Start by reading the notice and all annexures carefully. Identify the information the ITD is relying on and note the response deadline, which is typically between 7 and 30 days. Missing this deadline may result in a Section 148A(d) order, leaving you with fewer opportunities to present your case than during the Section 148A(b) show-cause stage.
Step 2: Check What the Notice is Based On
Compare the escaped income mentioned in the notice with your transaction records to identify the actual issue.
- If the figure matches your gross trading turnover instead of your net realised profit, it may be a gross-turnover drafting error.
- If the notice is based on missing or incorrect reporting, identify the transactions creating the mismatch.
Where the demand is based on gross turnover, prepare a transaction-by-transaction profit calculation supported by exchange CSV files and corresponding bank records.
Step 3: Gather Supporting Documents
Your response should directly address the trigger identified in the notice:
- AIS mismatch: Exchange CSV files, ITR acknowledgements, and a reconciliation between AIS transaction values and taxable income.
- P2P transactions: Counterparty PAN details, bank remittance records, and on-chain transaction hashes.
- Multi-wallet transfers: Exchange records, wallet histories, and a complete token trail showing that inter-wallet transfers were not new income.
Step 4: Evaluate Whether an Updated Return is Appropriate
If the notice relates to income that was genuinely omitted or substantially under-reported, filing an updated return under Section 139(8A) may be more appropriate than disputing the notice. Before responding, calculate your actual tax liability, the additional tax payable under Section 140B, and compare it with the demand raised. This helps you choose the most suitable course of action before the response deadline expires.
Responding to a crypto notice starts with accurate records. KoinX helps you consolidate exchange and wallet data, reconcile transactions, and generate reports that make responding to notices faster, clearer, and better supported.
How KoinX Can Help If You Have Received an Old-Year Crypto Notice?
Responding to an old-year crypto notice often starts with one challenge: locating accurate transaction records from 2 or 3 years ago that are spread across multiple exchanges and wallets. KoinX is a global crypto tax platform trusted by over 1.5 million users across 100+ countries, with 800+ exchange and wallet integrations, helping Indian taxpayers consolidate historical crypto data and prepare well-supported responses to ITD notices.
Historical Transaction Import Across 800+ Exchanges and Wallets
KoinX connects to 800+ exchanges and wallets and imports historical transaction data going back to FY 2021-22 and fetches exchange data automatically with either one click integration or manual CSV and API uploads. The result is a complete, exchange-verified record of every trade, deposit, withdrawal, and fee for the relevant financial year, precisely the underlying data a Section 148A reply requires.
Traded All Year? Now File in Minutes.
Get ITR-ready tax reports now.
Accurate Capital Gains Computation: Net Profit, Not Turnover
KoinX computes gains on a transaction-by-transaction basis using the correct cost of acquisition for each disposal. This produces the net profit figure, not the gross turnover figure, that the ITD should have used in the first instance.
For taxpayers contesting a gross-turnover-based demand, this computation is the core document of the Section 148A(b) response. For those filing an updated return, it establishes the accurate additional tax liability under Section 140B.
ITR-Ready Schedule VDA Reports for FY 2021-22 Onwards
For taxpayers who need to file an updated return under Section 139(8A), KoinX generates Schedule VDA-compliant reports for historical financial years, formatted for both ITR-2 and ITR-3. These reports give the taxpayer a CA-reviewable, ITD-ready disclosure document, one that reflects actual profit rather than an approximation, before the updated return window closes.
Transaction History Report
The Transaction History Report is a complete chronological ledger of every transaction recorded across all connected exchanges and wallets, trades, deposits, withdrawals, internal transfers, rewards, fees, and on-chain movements.
Every entry shows the asset, quantity, INR value at the time of the transaction, the source platform, and the transaction hash. A CA responding to a Section 148A notice or preparing an updated return uses this report to verify the raw data behind every tax calculation before it is submitted.
Buy Sell Report
The Buy Sell Report isolates every purchase, sale, and crypto-to-crypto swap recorded during the selected financial year, without the noise of deposits, withdrawals, or income events. Crypto-to-crypto swaps appear as two separate entries, capturing both sides of the trade for an accurate cost basis calculation.
For taxpayers whose notice involves a disputed turnover figure, this report gives a clean, exchange-consolidated list of trading activity that directly supports the net profit reconstruction submitted in the response.
If you have received a notice for FY 2021-22 or FY 2022-23, the response begins with accurate historical data. Get started with KoinX today and generate the transaction records, capital gains computation, and ITR-ready reports you need to respond or disclose, before the deadline passes.
End The Tax Panic Before It Starts
Use code TAXNOW and get FLAT 30% off.
Conclusion
Old-year crypto notices are not arriving by coincidence. The reassessment window is still legally open, the department’s data infrastructure only became actionable recently, and FY 2021-22 sits directly in the crosshairs before the five-year window closes on 31 March 2027. Whether the trigger is an AIS mismatch, a gross-turnover error, or a P2P documentation gap, the response begins with accurate historical transaction data, and that is precisely where most taxpayers are underprepared.
Pulling together two to three years of transaction records across multiple exchanges is not something most people can do manually under a notice deadline. KoinX imports that data automatically, computes net profit on a transaction-by-transaction basis, and generates the Schedule VDA reports you need, so your response is built on verified figures, not estimates.
Frequently Asked Questions
I Traded on WazirX in FY 2021-22 and Declared Nothing, Is It Too Late to Voluntarily Disclose?
It depends on whether the updated return window under Section 139(8A) is still open for your assessment year. If it is, filing an updated return with additional tax under Section 140B now carries significantly lower penalty exposure than responding to a notice after it has been issued. Confirm the current deadline with a CA before acting, the window is defined and has a closure date that varies by assessment year.
My Notice Shows Escaped Income of INR 18 Lakh but My Actual Profit Was INR 1.2 Lakh. Why is the Number So Different?
This is the gross-turnover drafting error. The ITD’s AIS reflects total transaction values, not net profit. A notice premised on INR 18 lakh of escaped income likely reflects your annual trading volume, not your realised gain. The response under Section 148A(b) must include a transaction-by-transaction profit reconstruction, supported by exchange CSV files and bank records, demonstrating that INR 1.2 lakh, not INR 18 lakh, constitutes the correct taxable figure.
I Used Three Different Exchanges in FY 2021-22, Will the ITD Combine All Three in One Notice or Send Separate Ones?
The Insight Portal consolidates PAN-linked data across all exchanges into a single AIS before generating the risk flag. In most cases, one notice will cover the aggregate mismatch across all platforms. However, where different exchanges are involved in different types of activity, say, spot trading on one and P2P on another, the notice may address each category separately within the same document. Read the annexures carefully to identify which exchange data is being relied on.
I Did P2P Trades on Binance in FY 2022-23 Without Counterparty KYC. What is My Actual Exposure?
Your exposure depends on whether the ITD classifies the inflows as unexplained cash credits under Section 68. Without verified counterparty PAN and proof of genuine transaction, the entire received amount, not just the gain, can be taxed at 60% along with a 25% surcharge on that tax.
I Filed My ITR for AY 2022-23 but Did Not Include Crypto Gains, Can I Still File a Revised Return?
If you have already received a Section 148A notice, the revised return window under Section 139(5) is closed for that assessment year. The updated return route under Section 139(8A) may still be available, subject to the defined limitation period. Where neither window is open, the response to the notice itself, under Section 148A(b), is the only remaining mechanism for presenting an accurate tax liability before the reassessment order is passed.
What is the Difference Between a Notice I Can Respond To and One That Leads Directly to a Reassessment Order?
A Section 148A(b) show-cause notice is a procedural step, wherein the taxpayer responds, the Officer considers the reply, and passes a reasoned order under Section 148A(d). That order either closes the matter or authorises issuing a Section 148 reassessment notice. The Section 148 notice, once issued, initiates the full reassessment. Responding effectively at the Section 148A(b) stage can prevent the Section 148 notice from issuing at all.
I Received a Notice but My Total Crypto Profit Across Both Years Was Under INR 50,000. Do I Still Owe Tax and Penalties?
Yes. The taxability of crypto income is not conditioned on a minimum profit threshold. If your total income including the crypto amount exceeds the basic exemption limit, tax is owed on those gains under the applicable general principles for those years. Under Section 270A, the penalty for under-reporting is 50% of the tax payable on the under-reported income itself, rising to 200% where the AO determines that misreporting was involved. Even a modest undeclared gain therefore carries a penalty that can exceed the original tax liability when the misreporting rate applies.
