India cracks down on crypto tax evasion in enforcement push

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India’s Income Tax Agency has launched a new crackdown on potential tax evasion and money laundering tied to virtual digital assets, including cryptocurrencies.

Government officials and local reports show that the department identifies individuals and entities engaged in crypto transactions that do not comply with the Income Tax Act of 1961.

The Central Committee of Direct Tax has recently sent emails to thousands of individuals, urging them to review and renew their income tax returns if crypto income is incorrectly reported or omitted. This initiative is part of CBDT’s broader nudge campaign aimed at promoting voluntary compliance.

This marks the third nudge campaign in six months, following previous drives focusing on foreign property disclosures and false political contribution deductions.

India does not recognize cryptocurrencies as fiat currency, but revenue from the VDA transfer has been taxed since April 2022. Under section 115bbbbh of the Income Tax Act, crypto income is taxed at a 30% flat without deduction, excluding the cost of earning.

You cannot offset or carry forward losses.

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India’s discrepancies tax documents

Officials say discrepancies have been revealed through data analysis, including discrepancies between income tax returns and taxes deducted in withholding by crypto exchanges or virtual asset service providers.

Some taxpayers reportedly failed to file mandatory schedule VDAs or declared crypto income at a low tax rate, while others mistakenly claimed deductions.

The crackdown comes amid wider concerns regarding the use of unrecorded revenues in high-risk crypto investments. The government is working on a discussion paper to explore VDA regulatory options, including the possibility of a ban, but has made it clear that taxation does not imply formal recognition of cryptocurrencies.

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