India’s Crypto Tax Reporting Falls Sharply Behind Trading Activity

India’s tax department has found major gaps between crypto trading activity and tax reporting, with government data showing that fewer than a quarter of individuals who made crypto transactions actually reported them.

Wide Gap Between Traders And Tax Filings

According to documents, only a small fraction of the 645,000 people who conducted crypto transactions during the year ending March 2023 disclosed those trades on their tax returns. The department also estimated that India now has around 39 million crypto traders collectively holding more than $2.1 billion in digital assets as of the end of May. Authorities pointed to offshore exchanges, private wallets and peer-to-peer trading as key factors making crypto activity difficult to track.

Findings Add To Broader Policy Debate

The report expands India’s ongoing crypto policy discussion beyond financial stability concerns raised by the central bank, now bringing offshore trading and lost tax revenue into focus. India was previously ranked first globally in crypto adoption. The tax findings follow a recent recommendation from the Reserve Bank of India urging lawmakers to keep banks insulated from cryptocurrencies and privately issued stablecoins, with the central bank reiterating that an outright ban remains a valid policy option.

Other Countries Face Similar Struggles

India isn’t alone in this challenge. In Israel, a voluntary crypto disclosure program aimed at collecting hidden capital fell well short of expectations, gathering only a fraction of the hundreds of millions in tax revenue authorities had hoped for. Experts pointed to the program’s lack of an anonymous disclosure option as a key reason for the weak response.