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India's Income Tax Department has launched a broad crackdown on tax evasion involving cryptocurrency, sending more than 44,000 notices to traders and investors who did not disclose their income from digital assets.
The enforcement action comes as India is attempting to regulate an industry that is thriving, even though tax legislation and the regulatory climate remain uncertain. Crypto Tax policies in India have become more stringent following reports of widespread evasion in digital asset income.
The Central Board of Direct Taxes (CBDT) is leading this initiative as part of a broader plan to enhance transparency and accountability in the cryptocurrency space. The CBDT's 'NUDGE' program (Non-Intrusive Usage of Data to Guide and Enable) uses digital intelligence tools to identify people who have failed to declare any income from Virtual Digital Asset (VDA) transactions, such as Bitcoin and Ethereum.
The India Crypto Tax crackdown has intensified, targeting unreported cryptocurrency transactions and offshore wallets. Advanced systems were used by the department, including Project Insight and the Non-Filer Monitoring System (NMS), to check tax filings with information reported by Virtual Asset Service Providers (VASPs). Where mismatches were identified, like unreported income or omissions in Schedule VDA disclosures, a formal notice was issued.
Authorities uncovered over Rs. 630 crore (around $75 million) in unreported income from crypto transactions during the 2022-23 and 2023-24 financial years. This was in addition to the Rs. 705 crore ($85 million) voluntarily disclosed by taxpayers.
Enforcement actions, including reassessment notices, searches, and surveys, have followed, targeting both individual traders and crypto exchanges. Authorities are ramping up efforts to detect Crypto Tax Evasion, targeting traders who fail to disclose their digital asset earnings.
In India, the taxes imposed on cryptocurrency are among the heaviest in the world at a flat profit tax of 30%, as well as 1% TDS on every transaction. These taxes have significantly reduced crypto trading volumes in India, resulting in the closure of several Indian platforms or their moving to crypto-friendly jurisdictions like Dubai, Singapore, and the British Virgin Islands.
The CBDT recently issued fresh guidelines to trace and penalize crypto tax evasion more efficiently. The lack of regulation complicates matters. There are taxes on digital assets, but India lacks a clear legal framework; they are neither fully legal nor entirely banned. This ambiguity has allowed parties to take advantage of loopholes. An example of this is structuring businesses overseas to avoid being scrutinized.
Also Read: India Ramps Up Crypto Fraud Crackdown with Forensic Investigations
As India focuses on enforcement, other countries are charging ahead with comprehensive crypto regulations. The EU's MiCA framework and U.S. legislation for stablecoins aim to regulate innovation while providing legal consumer protections in parallel. Until strikes find a balance between taxation and regulatory changes, it is falling behind.
Failure to report Digital Assets Income could result in heavy penalties under the revised crypto taxation laws. Amid the crackdown, global players, such as Coinbase, are looking to make a return to the Indian market, and some domestic advocates are calling for further integration of cryptocurrencies, including proposals for a national Bitcoin reserve. It is unclear whether India will maintain its banking and regulatory hardline.
