Respond to taxman's notice, file revised or updated return

The Income-Tax (I-T) Department has detected widespread tax evasion involving cryptocurrencies and, according to media reports, has issued emails to thousands of defaulting taxpayers seeking transaction details.

- HIMALI PATEL

Investors must understand the tax rules governing crypto assets and respond promptly to these emails.

How evasion is detected

The department gathers data on cryptocurrency activity from several sources. "Reporting agencies such as cryptocurrency exchanges and banks are obligated to report transactions through the Statement of Financial Transactions (SFT) to the tax department. Since July 1, 2022, TDS deduction is applicable on crypto transfers, which serves as a direct reporting to the I-T Department," says Preeti Sharma, partner, global employer services, tax & regulatory services, BDO India.

Mandatory know your customer (KYC) norms (PAN or Aadhaar submission) help trace transactions. Large or frequent crypto-linked deposits or withdrawals also trigger scrutiny. "The government employs data analytics to identify discrepancies and send notices, urging taxpayers to update their ITRs," says Shefali Mundra, tax expert at ClearTax.

TDS and taxation rules