- CBDT is investigating tax evasion linked to unreported crypto transactions using data analytics.
- Thousands of emails were sent to individuals suspected of underreporting income from Virtual Digital Assets.
- India’s crypto tax laws, including a 30% flat rate and 1% TDS, are now being enforced through data matching and NUDGE campaigns.
The Income Tax Department of India has commenced an expansive investigation into allegations of evasion of taxes and laundering of unaccounted income through investments of VDAs, including cryptocurrencies. The whole process was kickstarted after a data analytics exercise brought to light massive instances of contraventions of the Income Tax Act by persons involved in crypto transactions.
According to officials, the Central Board of Direct Taxes (CBDT), which oversees the Income Tax Department, has identified a large number of high-risk individuals and entities. These individuals allegedly failed to properly report income from digital asset transactions in their Income Tax Returns (ITRs). As part of a verification drive, the department has sent emails to thousands of such persons, urging them to update their ITRs to reflect any unreported crypto income.
“Data analytics has shown that a significant number of persons have violated provisions of the Income-tax Act by not filing Schedule VDA in their ITRs or by reporting income at lower tax rates or wrongly claiming cost indexation benefits,” said a source familiar with the matter. The department is cross-verifying ITRs with Tax Deducted at Source (TDS) data submitted by Virtual Asset Service Providers (VASPs), more commonly known as crypto exchanges.
New Crypto Tax Rules and Enforcement Mechanisms
This initiative comes on the heels of India’s new crypto tax regime, introduced via Section 115BBH of the Income Tax Act in April 2022. Under this regulation, income from cryptocurrencies is taxed at a flat rate of 30%, with no deductions allowed other than the cost of acquisition. Additionally, losses from crypto trading cannot be set off against any other income or carried forward to future years.
In July 2022, rules requiring 1% TDS on crypto transactions also came into effect, giving the tax department visibility into crypto trades. This data is now being used to identify discrepancies in tax filings.
Part of a Larger ‘NUDGE’ Strategy by CBDT
“This is a part of the third ‘NUDGE’ campaign in six months,” the source said. NUDGE stands for Non-intrusive Usage of Data to Guide and Enable and aims to nudge taxpayers to voluntarily follow the law. Earlier NUDGE campaigns focussed on undeclared foreign assets and fake claims for deductions under Section 80GGC.
The current crackdown signals the government’s growing focus on regulating the crypto ecosystem. Experts believe that increased enforcement could drive higher transparency but may also prompt concerns about overreach.
The CBDT has stated that non-compliance may lead to further scrutiny, and defaulters could be selected for detailed verification or even formal investigation.
Highlighted Crypto News Today:
Altcoins Lead $1B Crypto Crash Amid Escalating Middle East Tensions
