Income Tax Department Sends SMS /Email Intimations for Undeclared Crypto Transactions

If you’ve traded in crypto assets and TDS under Section 194S was deducted, but you did not report these transactions under “Schedule VDA” in your ITR, you may receive a message like this:

“Dear Taxpayer (PAN XXXXXXXX), It is observed that you have made transactions in Virtual Digital Assets (VDAs) of Rs. XXXXXX on which TDS u/s 194S deducted but the same transactions have not been declared…”

The ITD is now actively matching TDS data with your return filing and urging corrections via updated ITR under Section 139(8A).

Understanding the SMS/Email Intimation

The SMS/Email notification being sent to taxpayers clearly identifies undeclared crypto transactions where TDS under section 194S was deducted but not reported in the Schedule-VDA section of the ITR. The message urges taxpayers to review their returns and make corrections by updating their ITR under section 139(8A).

This development signals that the tax department is now actively cross-referencing data from crypto exchanges (Virtual Asset Service Providers) with individual tax returns to identify discrepancies. If you’ve received such a message, it’s crucial to understand your obligations and the steps needed to rectify your tax filing.

Crypto Taxation in India

Before addressing how to respond to such intimations, let’s review the current cryptocurrency tax framework in India:

Key Tax Provisions for Virtual Digital Assets

1. 30% Flat Tax Rate: All profits from cryptocurrency transactions are taxed at a flat 30% rate (plus applicable surcharge and 4% cess) under Section 115BBH, regardless of your income slab.
2. 1% TDS on Transfers: A 1% Tax Deducted at Source (TDS) applies to all crypto transfers exceeding ₹50,000 in a financial year (or ₹10,000 in certain cases) under Section 194S.
3. No Loss Offsetting: Losses from one crypto asset cannot be offset against gains from another crypto asset or any other income source.
4. Limited Deductions: No deductions except the cost of acquisition are allowed when calculating taxable income from crypto transactions.
5. Mandatory Reporting: All crypto transactions must be reported in the dedicated Schedule-VDA section of your ITR form.

When Do You Need to Pay Crypto Tax in India?

You are liable to pay the 30% tax on profits from crypto in the following scenarios:

How to Respond to the Income Tax Intimation

If you’ve received an SMS/Email regarding undeclared crypto transactions, here’s what you should do:

1. Verify Your Transactions First, check your crypto exchange accounts and transaction history to confirm the details mentioned in the intimation. You can also verify TDS deductions through:

• Form 26AS
• Annual Information Statement (AIS)
• Tax Information Statement (TIS)

2. Update Your ITR Under Section 139(8A) If you find that you indeed failed to report crypto transactions in your ITR, you can file an updated return (ITR-U) under Section 139(8A):

• You can file an updated return within 24 months from the end of the relevant assessment year.
• For AY 2023-24 (FY 2022-23), you have until March 31, 2026, to file an updated return.
• Only one updated return can be filed per assessment year.

3. Additional Tax/Penalty for Filing Updated Returns When filing an updated return, be prepared to pay additional taxes and penalties:

• If filed within 12 months from the end of the assessment year: 25% additional tax on the tax and interest payable.
• If filed between 12-24 months: 50% additional tax on the tax and interest payable.

4. Correctly Fill Schedule VDA in Your Updated Return When filing your updated return, ensure you properly complete the Schedule VDA section:

• Report each crypto transaction separately with acquisition date, sale date, cost of acquisition, and sale value.
• Specify whether the income is being reported as capital gains or business income.
• If reporting as business income, use ITR-3; if reporting as capital gains, use ITR-2.

Consequences of Non-Compliance

Ignoring the intimation and failing to update your return could lead to serious consequences:

• Penalties ranging from 50% to 200% of the tax amount evaded.
• Interest charges of 1% per month on the outstanding tax amount.
• Late filing fees ranging from ₹1,000 to ₹5,000.
• In severe cases of tax evasion, imprisonment for up to 7 years.

Preventive Measures for Future Compliance

To avoid such intimations in the future, ensure you:

1. Maintain Detailed Records: Keep comprehensive records of all your crypto transactions, including dates, amounts, and purposes.
2. Use Crypto Tax Calculation Tools: Consider using specialized crypto tax calculation services that can automatically track and calculate your tax liability.
3. Report All Transactions: Even if TDS has been deducted, you must still report all crypto transactions in Schedule VDA of your ITR.
4. Stay Updated: Crypto tax regulations in India continue to evolve, with new reporting requirements being introduced in FY 2025-26.

Conclusion

The Income Tax Department’s move to send SMS/Email intimations for undeclared crypto transactions marks a significant step in enforcing compliance in the crypto space. With the department now actively cross-referencing data from crypto exchanges with individual tax returns, it’s more important than ever to ensure accurate reporting of all your crypto activities.

If you’ve received such an intimation, don’t panic – the tax department is giving you an opportunity to correct your return through the updated return facility under Section 139(8A). However, act promptly to avoid more severe penalties and legal complications that could arise from continued non-compliance.

Remember, with the growing adoption of cryptocurrencies in India, the tax authorities are increasingly focusing on ensuring proper tax compliance in this sector. Staying informed and maintaining proper documentation of your crypto transactions is the best way to navigate this evolving regulatory landscape.