Cryptocurrency Traders in India Brace for Tax Investigation Over Previous Transactions

The Income Tax Department of India has stepped up its enforcement against undisclosed cryptocurrency transactions, issuing Section 133(6) notices to individuals. These notices, shared online, request detailed information about buy and sell dates, outstanding balances, and account details related to cryptocurrency transactions.

Each Section 133(6) notice requires a tailored response from taxpayers, as they are designed to address undeclared trades from prior years as well as those made across centralized and decentralized exchanges. The notices may also be a consequence of failure to properly file tax deducted at source (TDS) returns or mismatches in Form 26AS or Annual Information Statements.

Koinx, a crypto tax software provider, urges taxpayers to maintain comprehensive records of all cryptocurrency transactions, including wallets and exchange accounts. Their crypto tax software integrates with over 800 platforms to generate tax-compliant reports, making the process of responding to these notices more manageable.

The crackdown on undisclosed cryptocurrency transactions is part of a wider trend in India targeting digital assets and online gaming. In August 2025, Indian authorities intensified their activities against unexplained cryptocurrency transactions, coinciding with the passage of strict online gaming laws and increased scrutiny linking cryptocurrencies to fraud, money laundering, and cybercrime. This led to calls for stronger enforcement and crypto forensic labs.

Unfortunately, the ban on real money games has resulted in widespread layoffs, particularly in companies tied to cricket-based fantasy contests. The Indian government recently banned all real money games, including popular fantasy sports platforms, which has further complicated the financial landscape for many individuals.

Ignoring a Section 133(6) notice can result in daily penalties, reassessments, heavy fines up to 200% of the tax avoided, and in extreme cases, prosecution. Therefore, it is crucial for taxpayers to respond promptly and accurately to these notices to avoid any potential legal repercussions.

In conclusion, the Income Tax Department's crackdown on undisclosed cryptocurrency transactions serves as a reminder for individuals to maintain accurate records of their digital asset transactions and to comply with tax regulations. Failure to do so can lead to significant penalties and legal consequences.