Heightened Crypto Reporting by India’s Tax Authority
India’s tax authority is intensifying its focus on the reporting of cryptocurrency transactions, issuing notifications to a large number of taxpayers regarding undeclared income from virtual digital assets. This initiative is part of a broader effort to uncover concealed earnings and potential money laundering activities facilitated by digital tokens.
Increased Surveillance on Cryptocurrency Holders
The Central Board of Direct Taxes (CBDT) is actively scrutinizing whether taxpayers have included their cryptocurrency transactions in Schedule VDA of their tax returns. Many individuals with high-risk profiles have either under-reported or completely omitted these transactions. Cryptocurrency exchanges, also known as Virtual Asset Service Providers (VASPs), submit Tax Deducted at Source (TDS) reports, and discrepancies between these reports and income tax returns have led to a surge in alerts and notifications.
Advertisement Banner
Understanding the Flat 30% Tax Regulation
Section 115BBH of the Income Tax Act mandates a flat 30% tax on profits derived from Virtual Digital Asset (VDA) transfers. Taxpayers are only permitted to deduct the acquisition cost of the asset, with no other deductions allowed. Additionally, losses cannot be set off or carried forward. Some taxpayers have attempted to apply cost indexation or claim VDA losses under different headings, resulting in interest charges and penalties.
The NUDGE Campaign for Improved Compliance
The NUDGE (Non-intrusive Usage of Data to Guide and Enable) initiative, now in its third phase within six months, previously targeted undeclared foreign assets and false political donation claims under Section 80GGC. The campaign emphasizes using data analytics rather than enforcement raids to encourage taxpayers to amend their returns. The tax authority integrates data from banks, TDS filings by VASPs, and blockchain technology to promote compliance in a non-coercive manner.
Implications for Cryptocurrency Traders and Exchanges
Traders dealing with small amounts now face increased scrutiny. Any profits from cryptocurrencies since the 2022-23 fiscal year must be accurately reported, as omitting details in Schedule VDA could result in notifications and additional liabilities. Cryptocurrency exchanges are also urged to ensure precise TDS filings, as inaccuracies may trigger further investigations into their clientele.
The focus now shifts to how traders and service providers will respond. Some may enhance their record-keeping practices, while others might reduce trading activities to avoid substantial taxes. However, the clear and enforced regulations may provide legal assurance, potentially attracting more serious investors to the cryptocurrency market.
Our Editorial Commitment
At Bitcoinist, our editorial process is dedicated to delivering meticulously researched, accurate, and unbiased content. We adhere to stringent sourcing standards, with every page undergoing a thorough review by our team of top technology experts and seasoned editors. This rigorous process ensures the integrity, relevance, and value of our content for our readers.
“`
