Tax Authorities Target Crypto Traders Over Non-Disclosures
India’s Central Board of Direct Taxes (CBDT) has begun a comprehensive investigation targeting individuals and firms that failed to report or misrepresented their crypto-related income. The action comes amid rising concerns over tax evasion and potential money laundering through digital assets.
Thousands of taxpayers have been flagged as “high-risk defaulters” for failing to comply with Section 115BBH of the Income Tax Act.
This section, introduced in the Finance Act of 2022, imposes a flat 30% tax (plus surcharge and cess) on income from transfers of Virtual Digital Assets (VDAs). Importantly, no deductions (except cost of acquisition) or loss offsets are permitted.
Discrepancies in ITR and Exchange Data Trigger Investigation
The CBDT has cross-verified Income Tax Returns (ITRs) with TDS reports submitted by Virtual Asset Service Providers (VASPs), including crypto exchanges. This process revealed widespread mismatches and non-compliance, prompting the nationwide scrutiny.
Key violations include underreporting crypto gains, misusing cost indexation benefits, and failing to declare VDA income in the correct ITR schedule.
CBDT officials have emphasized that the investigation is aimed at those who either failed to disclose crypto holdings entirely or reported income inaccurately. Government analytics identified cases of high-risk investments in digital assets, which may be tied to unaccounted funds.
Non-Compliant Taxpayers Warned to Voluntarily Update ITRs
Taxpayers flagged in the investigation have been formally notified and urged to revise their filings. The move aligns with CBDT’s broader “Trust Taxpayers First” initiative under the NUDGE framework, which promotes voluntary compliance before taking punitive actions.
“This is the third major NUDGE campaign in six months,” officials noted, following earlier drives focusing on foreign asset disclosures and ineligible tax deductions.
The agency warns that continued non-compliance may lead to legal scrutiny and financial penalties under the Income Tax Act.
RBI Maintains Cautious Stance on Crypto Assets
Meanwhile, the Reserve Bank of India (RBI) reaffirmed its cautious stance on digital currencies, citing risks to financial stability. A government panel is currently reviewing crypto regulations following Supreme Court recommendations.
“We remain concerned about the potential risks crypto poses to monetary policy,” said RBI governor Sanjay Malhotra in a recent press briefing.