Decoding crypto tax notices: Expert explains different notice types, penalties, how taxpayers should respond

The Income Tax Department is issuing crypto tax notices in FY 2021-22, using the Insight Portal and CRIU to cross-check PAN-linked KYC details, exchange data, and bank transactions.

Notice types include Section 143(1) intimation for TDS or Schedule VDA mismatches, Section 139(9) defective return notices, Section 142(1) inquiries, and Section 133(6) requests for wallet and exchange records.

Ignoring a notice can lead to reassessment under Sections 148A and 148, scrutiny under Sections 143(3) or 144, and a tax demand under Section 156.

Notices may reflect gross transaction value rather than actual taxable gain, inflating apparent income; reconciling turnover against actual gains is advised.

Timely reconciliation of records and responding within the prescribed deadline can help investors avoid unnecessary tax disputes.