Key Highlights
- The Income Tax Department has started issuing Section 148A notices to Indian crypto investors over unreported or mismatched transactions from earlier years.
- The notices act as preliminary reassessment triggers, giving recipients a chance to explain undisclosed income before formal proceedings begin.
- Tax platforms warn that the system may initially treat total trading volume as income, inflating apparent liability until taxpayers respond with documentation.
Indian crypto investors are receiving fresh notices under Section 148A of the Income Tax Act, as authorities step up enforcement against unreported digital asset activity from earlier financial years.
According to a report from crypto tax firm Koinx, Section 148A notices are being issued to taxpayers where discrepancies in reported income are flagged through advanced data-matching systems. The department is reportedly focusing much of its current attention on the financial year 2021–22 (Assessment Year 2022–23).
Section 148A acts as a mandatory preliminary step before a full reassessment under Section 148. It is designed to give the taxpayer an opportunity to explain why a reassessment notice should not be issued, rather than triggering proceedings outright.
How the notices are generated
The Income Tax Department’s Insight Portal and CRIU (Case Risk Identification Unit) infrastructure cross-check data from multiple sources, including PAN-linked KYC details submitted to exchanges, trading activity, bank transfers, and filed income tax returns. Any mismatch across these datasets can flag a taxpayer for further review.
The department’s reach has expanded this year. From January 1, 2026, amendments to Rules 114F, 114G, and 114H brought crypto holdings and Central Bank Digital Currencies (CBDCs) within the definition of reportable financial assets, requiring institutions to share user data with tax authorities in a manner similar to mutual funds and stocks.
Trading volume vs. actual profit
A key concern raised by tax professionals is how the system initially measures income. Koinx pointed out that the department’s risk engines may flag the entire transaction volume rather than the actual profit earned.
In one example shared by Koinex, a trader with around ₹1.6 crore in annual transaction volume may have netted a profit of only ₹4–5 lakh after costs and losses. However, the system can deem the full ₹1.6 crore as “escaped income” until the taxpayer submits a clarification with supporting records.
The issue is more pronounced for users who moved assets across multiple exchanges and private wallets, as the department often captures only one segment of the transaction chain, treating a simple wallet transfer as a taxable sale.
What recipients are advised to do
Koinx urged recipients not to panic and to respond promptly with accurate data. It highlighted that the notices are not final tax demands, but preliminary inquiries asking recipients to explain why their past assessments should not be reopened.
The firm advised taxpayers to reconstruct their full transaction history, calculate actual gains or losses, prepare proper tax computations, and submit supporting evidence within the response window.
Under existing rules, the Assessing Officer must give the taxpayer between 7 and 30 days to reply before deciding whether to proceed with a formal Section 148 notice. Notices under Section 148 can generally be issued up to three years after the relevant assessment year, extending to 10 years where the alleged escaped income exceeds ₹50 lakh.
The current wave of notices fits a broader pattern of tightening oversight. Earlier this year, the Income Tax Department flagged crypto risks and indicated that users face higher scrutiny, particularly where activity has shifted to offshore exchanges and private wallets that fall outside Indian regulatory control.
For Indian crypto investors, the message from the department is consistent with its recent direction: reporting accurately is no longer optional, and historical filings remain open to review.
Also Read: India’s Crypto Tax Net Widens but Regulation Still Missing, Jaideep Reddy
