India’s Enhanced Strategies to Tackle Cryptocurrency Tax Evasion
In an effort to intensify the crackdown on tax evasion within the cryptocurrency sector, India’s Income Tax Department has dispatched over 44,000 notices to traders who have not disclosed their Virtual Digital Asset (VDA) transactions in their income tax returns. This move is part of a larger initiative to ensure transparency and compliance within the digital asset landscape.
Increasing Pressure on Non-Compliant Crypto Users in India
During a recent session of the Rajya Sabha, India’s upper house of Parliament, Pankaj Chaudhary, the Minister of State for Finance, announced that the Central Board of Direct Taxes (CBDT) has implemented rigorous enforcement actions targeting crypto users who fail to comply with tax regulations. These actions include issuing reassessment notices, conducting surveys, and executing search-and-seizure operations under the Income Tax Act, 1961.
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To foster voluntary compliance, the CBDT has rolled out the NUDGE campaign (Non-Intrusive Usage of Data to Guide and Enable), aiming to raise awareness among individuals involved in cryptocurrency trading. As part of this campaign, a total of 44,057 emails and messages were sent to individuals who had invested in or traded crypto assets without reporting these activities in their tax filings.
Unveiling Hidden Income and Heightening Oversight
Since the introduction of a tax on digital asset income in the 2022-23 financial year, taxpayers have reported approximately ₹705 crore ($80.6 million) in crypto-related income for the fiscal years 2022-23 and 2023-24. However, through enforcement actions such as surveys and raids, an additional ₹630 crore ($72 million) in undisclosed crypto-related income has been uncovered. Not just individual taxpayers, but crypto exchanges have also been implicated in these tax evasion accusations.
Data Analytics: A Tool for Enhanced Monitoring
The CBDT is utilizing advanced data analytics tools such as the Non-Filer Monitoring System (NFMS), Project Insight, and various internal databases to enhance oversight of crypto transactions. These tools cross-reference information provided in tax filings with actual transactions reported by Virtual Asset Service Providers (VASPs) through TDS returns. Discrepancies identified through this system prompt further enforcement actions to ensure accurate reporting and recovery of tax dues.
Challenges and Opportunities in India’s Crypto Ecosystem
Despite India’s position as a leading country in global crypto adoption, its regulatory and taxation framework has been contentious. The imposition of a 30% tax on crypto profits, coupled with a 1% TDS on every trade, has deterred many retail traders and investors. This regulatory environment has led to diminishing trading volumes on Indian crypto exchanges, with some businesses announcing layoffs or closures. For instance, Bybit, a crypto exchange, temporarily suspended operations in India due to regulatory ambiguities earlier this year.
International Perspectives: A Comparative View
Contrastingly, neighboring Pakistan has adopted a more welcoming stance towards digital assets, exploring innovative solutions like utilizing excess energy for Bitcoin mining. Similarly, the UAE is solidifying its status as a global hub for crypto businesses by eliminating Value Added Tax (VAT) on cryptocurrency transactions in November 2024.
Hopeful Signs of Regulatory Reevaluation
Amidst these challenges, there are indications that India might be reevaluating its approach. In July 2025, Pradeep Bhandari, a spokesperson for the Bharatiya Janata Party (BJP), urged the government to consider establishing a national Bitcoin reserve, hinting at a potential long-term strategy to integrate cryptocurrencies into the financial system. Furthermore, Coinbase, a major US-based crypto exchange, plans to re-enter the Indian market later this year, reflecting a sustained global interest in India’s long-term crypto potential despite short-term uncertainties.
Currently, Bitcoin is trading at $116,720, reflecting a 1.2% increase over the past 24 hours.
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