India is intensifying its crackdown on unreported crypto activity, using automated systems that flag estimated income which may not reflect real profits, triggering reassessment notices for past tax filings.
Background: Section 148A Notices Target FY2021-22
India's Income Tax Department is issuing notices under Section 148A to cryptocurrency investors, asking them to explain why past assessments should not be reopened. According to crypto tax platform Koinx on April 6, 2026, the notices primarily target transactions from the financial year 2021-22. Koinx stated on social media: “148A notices are now being issued to crypto investors in India. Many relate to FY 2021-22 transactions.” The platform clarified: “The flagged amount is often NOT your actual profit. It’s just what the system thinks is income … until you prove otherwise.”
How Automated Systems Flag 'Income'
The IT Department uses internal surveillance systems and risk engines, namely the Insight Portal and CRIU infrastructure, to analyze financial activity across multiple datasets. These systems compare PAN-linked KYC details, exchange trading records, bank transfers, and filed income tax returns. Any discrepancy – such as mismatches between exchange-reported volumes and bank inflows – can trigger a Section 148A notice. Koinx emphasized: “A 148A notice is not a tax demand yet. It’s a show-cause notice. Your response determines what happens next.” Structural risks worsen when traders use multiple exchanges and wallets. For example, as assets move across Coinswitch, Binance, private wallets, and Wazirx, the system may capture only a segment of the transaction chain, leading to inflated income assumptions. Authorities often interpret gross turnover as income rather than net profit.
Case Study: ₹1.6 Crore Volume, Actual Profit Only ₹4-5 Lakh
Koinx illustrated with an example: a trader executed transactions totaling ₹1.6 crore (approximately $172,000) in volume during the year, but after costs and losses, actual profit was only ₹4-5 lakh (about $4,300-$5,400). However, the system may initially flag the entire ₹1.6 crore as deemed income until the taxpayer provides clarification. This ‘volume-as-income’ treatment significantly increases tax exposure, especially for high-frequency traders.
What to Do: Stay Calm, Respond with Accurate Data
Koinx urged recipients not to panic and to act promptly: reconstruct complete transaction histories across all exchanges and wallets, calculate actual gains/losses rather than relying solely on exchange reports, prepare accurate tax computations with supporting documents (trade logs, bank statements), and submit a detailed response within the deadline. The platform concluded: “Most notices can be resolved if your data is correct.” As India’s enforcement systems expand, data-matching engines are becoming more comprehensive. Investors must maintain thorough records and proactively address notices to avoid back taxes and penalties.
Notably, India recently froze $271 million in crypto assets linked to illegal forex trading, signaling coordinated crackdowns by tax and law enforcement agencies. For active crypto traders in India, compliance is no longer optional.