India’s Income Tax Department Cracks Down on Crypto Tax Evasion
India’s Income Tax Department recently launched a fresh crackdown on potential tax evasion and money laundering related to virtual digital assets, including cryptocurrencies. The department has identified individuals and entities engaging in crypto transactions who have failed to comply with the Income Tax Act, 1961.
The Central Board of Direct Taxes (CBDT) has taken action by sending emails to thousands of individuals, urging them to review and update their income tax returns if crypto income was misreported or omitted. This initiative is part of CBDT’s broader NUDGE campaign, which aims to encourage voluntary compliance.
This latest campaign marks the third NUDGE initiative in the last six months, following earlier drives that focused on foreign asset disclosures and false political donation deductions. The government is serious about cracking down on tax evasion and ensuring that individuals accurately report their income from virtual digital assets.
Although cryptocurrencies are not recognized as legal tender in India, income from virtual digital asset transfers has been taxable since April 2022. Under Section 115BBH of the Income Tax Act, crypto income is taxed at a flat rate of 30% without deductions, except for the cost of acquisition. Furthermore, losses cannot be offset or carried forward, making it crucial for individuals to accurately report their crypto income.
Officials have been using data analytics to uncover discrepancies in tax filings, including mismatches between income tax returns and tax deducted at source filings by crypto exchanges or Virtual Asset Service Providers. Some taxpayers have failed to file the mandatory Schedule VDA or have declared crypto income at lower tax rates, while others have wrongly claimed deductions.
The crackdown on crypto tax evasion comes amid broader concerns over the use of unaccounted income in high-risk crypto investments. While the government is exploring regulatory options for virtual digital assets, including a possible ban, it has clarified that taxation does not imply formal approval of cryptocurrencies.
Overall, the Income Tax Department’s efforts to crack down on crypto tax evasion are part of a larger push to ensure compliance with tax laws and prevent money laundering through virtual digital assets. It is essential for individuals and entities involved in crypto transactions to accurately report their income and comply with tax regulations to avoid facing penalties or legal consequences.