Received a Message from the Income Tax Department on VDA Transactions? Here's What You Must Do!

📢Author: CA Pranay Bafna | Expert in RSU & ESPP | Zrotax

Background

The Income Tax Department has recently started issuing automated alerts to taxpayers who have engaged in transactions involving Virtual Digital Assets (VDAs) such as cryptocurrencies and NFTs. These alerts are triggered when TDS (Tax Deducted at Source) under Section 194S is visible in the department's system, but the corresponding income has not been disclosed in Schedule-VDA of the ITR.

This step is part of the department's enhanced compliance and data tracking mechanism through AIS (Annual Information Statement) and Form 26AS.

Sample Message Sent by the Department

"It is observed that you have made transactions in Virtual Digital Assets (VDAs) of ₹1,14,492.78 on which TDS u/s 194S deducted, but the same transactions have not been declared in the Schedule-VDA in your ITR for A.Y. 2024–25. It is requested that the ITR filed may be reviewed and mistake, if any, may be corrected by updating the ITR u/s 139(8A).”

What Triggers This Message?

You are likely to receive this message if:

• You traded cryptocurrencies, NFTs, or similar digital assets.

• The platform or exchange deducted TDS @1% under Section 194S.

• You filed your ITR, but did not report this income in Schedule-VDA.

• The AIS/26AS shows VDA TDS, but your ITR doesn't match.

What is Schedule VDA?

Schedule VDA is a new section introduced in ITR Forms from AY 2023–24 onwards. It requires detailed reporting of:

• Date of acquisition & transfer

• Head of income (Business/Capital Gain)

• Cost of acquisition

• Sale consideration

• Net income from transfer of VDAs

Why You Must Take This Seriously

Failing to report VDA transactions can result in:

• Notices under Section 148 (Income Escaping Assessment)

• Penalties and interest on unpaid tax

• Increased scrutiny of your financial records

• Classification as a non-compliant taxpayer

What Should You Do?

Step 1: Login to the Income Tax Portal

• Visit: https://www.incometax.gov.in

• Login using your PAN, password, and OTP.

Step 2: View Filed ITR

• Go to e-File > Income Tax Returns > View Filed Returns

• Select the relevant Assessment Year (e.g., AY 2024–25 for FY 2023–24)

• Click on "View Form".

Step 3: Check “Schedule VDA” in the Return (search VDA in PDF)

• In the ITR form (either PDF or online view), search for the section titled:

“Schedule VDA – Income from transfer of Virtual Digital Assets”

If this section is present and filled, then your VDA transactions have been reported.

If the section is blank or missing, it means VDA is NOT reported, and you need to file ITR U

  Step-by-Step Process to File ITR-U (Updated Return) under Section 139(8A):

1. Log in to the Income Tax e-Filing Portal

2. Navigate to:

   e-File > Income Tax Returns > File Income Tax Forms

3. Select Form ITR-U for AY 2024–25

4. Choose reason for update:

   Income not reported correctly

5. Fill in the Schedule-VDA section with accurate details

6. Calculate your tax liability, including:

   • Regular tax

   • Interest under sections 234A/B/C

   • Additional tax @ 25% of total tax + interest (if filed within 12 months)

7. Pay the demand challan using Challan 280

8. Submit the return and verify it via Aadhaar OTP, DSC, or net banking

Deadline to File ITR-U

• For FY 2023–24 (AY 2024–25):

  You can file ITR-U up to 31 March 2026

• Only one ITR-U per financial year is allowed

• File within 12 months of original filing to avoid 50% additional tax

Already Filed Correctly?

If you have already disclosed VDA income properly in your ITR, you may disregard this message. However, we strongly recommend verifying:

• Form 26AS

• AIS & TIS

• Filed ITR Form (especially Schedule-VDA)

Pro Tip

Ensure you retain:

• Exchange statements (like WazirX, CoinDCX, Binance, etc.)

• TDS certificates (Form 16A)

• Crypto transaction histories

This will help you accurately report all future transactions and avoid red flags.

Conclusion

If you’ve received the VDA notice, don’t panic. Take prompt action, review your return, and file the ITR-U if needed. India’s tax systems are getting smarter — and your compliance must too. 📞 Need Help?

💼 Call us on CA Pranay Bafna - +91 8888458882