India Issues 44,000 Tax Warnings to Crypto Traders

India's Aggressive Crypto Tax Enforcement

India’s Income Tax Department has issued over 44,000 notices to crypto traders for failing to report digital asset income. This move is part of a broader effort by the government to crack down on undisclosed virtual asset gains and ensure compliance with tax laws. The enforcement campaign highlights the growing scrutiny of the cryptocurrency market in the country.

Authorities have uncovered $75 million in unreported gains from Virtual Digital Asset (VDA) transactions, including Bitcoin (BTC), across the financial years 2022–23 and 2023–24. This figure contrasts sharply with the ₹705 crore ($83.75 million) in VDA income that was voluntarily reported during the same period. To improve compliance, the Central Board of Direct Taxes (CBDT) launched its “NUDGE” initiative, which uses digital intelligence tools to identify non-filers and encourage voluntary reporting.

Key Strategies for Compliance

Tax authorities have employed systems like Project Insight, the Non-Filer Monitoring System (NMS), and internal data tracking tools to match transactions reported by Virtual Asset Service Providers (VASPs) with individual tax returns. When discrepancies were found—such as undeclared profits or missing Schedule VDA entries—formal notices were issued, with further action being taken in some cases.

The department has also been working closely with VASPs to ensure transparency and accuracy in reporting. This collaboration aims to create a more robust system for tracking and taxing digital assets, which has become increasingly complex as the market evolves.

A Double-Edged Sword: Crypto Tax Policy

India has one of the most aggressive crypto tax policies in the world, with a flat 30% tax on profits and a 1% TDS (Tax Deducted at Source) on every transaction. While these measures are intended to increase revenue, they have reportedly driven many investors offshore or underground. Several Indian crypto companies have relocated to jurisdictions with friendlier tax environments, such as Singapore, Dubai, and the British Virgin Islands.

The legal ambiguity surrounding crypto in India adds another layer of complexity. Digital assets are neither fully legal nor illegal, creating a murky regulatory environment where tax rules exist without a defined framework. This vacuum has allowed exchanges like WazirX to exploit legal loopholes—such as incorporating its parent firm in Singapore—to restructure and distance itself from scrutiny following its $230 million hack.

Global Trends and India’s Position

As the Indian government leans heavily on tax enforcement without offering a regulatory roadmap, other countries are taking steps to integrate and innovate. From the EU’s MiCA regulation to U.S. stablecoin legislation, governments are aiming to strike a balance between oversight and growth. These developments highlight the importance of clear and comprehensive regulations for the cryptocurrency industry.

Meanwhile, India risks stalling innovation by treating crypto primarily as a revenue target rather than a long-term asset class. With enforcement tightening, more clarity, not just compliance, may be needed to keep the industry within India’s borders. The government must consider how to foster a supportive environment for crypto while ensuring that tax obligations are met.

The Road Ahead

The current approach to crypto taxation in India is proving to be a double-edged sword. While it generates significant revenue, it also drives away businesses and investors. The need for a balanced policy that encourages compliance without stifling innovation is more pressing than ever.

As global trends continue to evolve, India must find a way to align its regulatory framework with international standards. This will require collaboration between policymakers, industry stakeholders, and regulatory bodies to create a sustainable and transparent ecosystem for digital assets. Only then can India harness the full potential of cryptocurrencies while maintaining fiscal responsibility.