(AsiaGameHub) –   India is revisiting past cryptocurrency transactions, leading some traders to discover that their total trading volume might be interpreted as taxable income. Tax authorities are currently concentrating on the financial year 2021-2022, scrutinizing reporting discrepancies and requesting explanations from taxpayers.

Good to Know

• Section 148A notices serve as preliminary reassessment notifications, not conclusive tax demands.
• According to Koinx, a significant number of recent notices pertain to cryptocurrency transactions from FY 2021–22.
• In India, profits from virtual digital assets are subject to a 30% tax, with a 1% Tax Deducted at Source (TDS) rule applicable to numerous transfers.

Why Some Traders Are Seeing Huge Numbers

For numerous traders, the primary challenge isn’t about actual profits, but rather about documentation. Indian tax systems might flag substantial figures, potentially interpreting total cryptocurrency movement as income until a trader provides a complete transaction history.

Koinx stated that “148A notices are currently being issued to crypto investors across India.” They further noted that “Many of these notices concern FY 2021–22 transactions,” clarifying that “This figure frequently does NOT represent your true profit. It is merely what the system perceives as income… until you provide contrary evidence.”

Fragmented trading practices are causing complications. A user might purchase assets on one exchange, transfer them via a wallet, move them to a different platform, and then liquidate them elsewhere. If only a portion of this transaction chain is visible, the tax assessment can appear inflated. Koinx explained that the Income Tax Department employs tools like the Insight Portal and CRIU systems to cross-reference PAN-linked KYC information, exchange transactions, bank transfers, and submitted tax returns. Discrepancies in these records can trigger a Section 148A notice.

A straightforward illustration highlights this disparity. Koinx cited an instance where annual crypto trading volume amounted to ₹1.6 crore, yet the actual profit, after accounting for losses and expenses, was merely ₹4 lakh to ₹5 lakh. The system might consider the higher volume as income until the trader substantiates the complete transaction history.

Koinx also sought to alleviate concerns, stating:

“A 148A notice does not constitute a tax demand at this stage. It is a show-cause notice, implying the department is requesting: ‘Provide reasons why your assessment should not be reopened.’ Your subsequent actions will dictate the outcome.”

Subsequently, it advised:

“Should you receive this notice, refrain from panicking.” And a final statement emphasized the practical aspect: “The majority of these notices can be resolved if your data is accurate.”

The broader regulatory environment is already stringent. India imposes a 30% tax on income derived from the transfer of virtual digital assets, disallows most deductions apart from the acquisition cost, and enforces a 1% TDS on numerous transfers. Reuters reported in February that authorities were closely observing cryptocurrency trading behaviors to enhance tax compliance. Consequently, historical records, wallet transaction logs, and exchange export data have become considerably more critical than many traders had anticipated.