Indian Traders Face Tax Evasion Warnings as Regulators Crack Down on Crypto

The Income Tax Department of India Intensifies Crackdown on the Crypto Industry

The Indian Income Tax Department has taken significant steps to address tax evasion within the cryptocurrency sector. Over 44,000 tax notices have been issued to individuals who failed to report income or transactions related to virtual digital assets (VDAs). This move is part of a broader initiative aimed at increasing transparency and reducing tax evasion in one of the world’s fastest-growing crypto markets.

The Central Board of Direct Taxes (CBDT) emphasized that these actions are designed to bring more scrutiny to the industry and ensure compliance with existing tax laws. The measures include focused reassessment drives and asset seizures under the Income Tax Act, 1961. Additionally, the CBDT has implemented advanced data analysis tools to cross-check tax filings against transaction records from Virtual Asset Service Providers (VASPs).

Non-compliant users face severe penalties, including fines of up to 200% of the taxes they understate. These penalties are part of the NUDGE program, which encourages voluntary compliance among taxpayers. Officials have sent over 44,057 emails and text messages to flagged users as a reminder to report their crypto-related activities.

High Adoption and Increased Scrutiny

India has seen rapid adoption of cryptocurrencies, with approximately 100 million users. The market penetration rate stands at 7.1% of the population, making it one of the most active crypto markets globally. This high adoption rate has prompted the government to focus on closing tax loopholes in the sector.

In the fiscal years 2023 and 2024, officials collected around 705 crore rupees ($80 million) in reported crypto earnings. However, investigations have uncovered undisclosed earnings of at least 630 crore ($75 million). These findings have led to increased tax reviews, raids, and asset seizures across the country.

The Enforcement Directorate has also stepped in, seizing 42.8 crore rupees ($4.8 million) in assets linked to an Indian national involved in a fraudulent scheme involving a fake Coinbase site. The individual is currently serving a 10-year sentence in the United States for defrauding international investors with a scam worth $20 million.

Licensing and Regulation Efforts

To manage the growing risks associated with the crypto market, India has started licensing both local and foreign exchanges through its Financial Intelligence Unit (FIU). Prominent platforms like Binance, Coinbase, KuCoin, and Bybit have received approval to operate under FIU supervision. This registration allows Indian authorities to monitor transactions and collect taxes more effectively.

Strict Crypto Tax Laws Remain in Place

India's crypto tax regime remains one of the strictest in the world. Introduced in 2022, the framework imposes a flat 30% tax on all gains from virtual digital assets under Section 115BBH. Additionally, traders must pay a 1% Tax Deducted at Source (TDS) on transactions exceeding certain limits.

The rules apply to digital assets such as cryptocurrencies and non-fungible tokens (NFTs). An 18% Goods and Services Tax (GST) is also applied to service fees charged by exchanges for wallet and trading services.

Despite pushback from the industry, the government has maintained its stance on these regulations. Instead of revising the rules, enforcement agencies have enhanced surveillance and compliance mechanisms. The CBDT uses systems like Project Insight and the Non-Filer Monitoring System (NMS) to align blockchain activity with tax reporting requirements.

Under Indian law, failing to report crypto transactions can result in a 50% penalty on unpaid taxes. If intentional misreporting is proven, the fine can increase to 200%.

Conclusion

With the government taking a firm stance on crypto taxation, the industry faces increased regulatory pressure. As the market continues to grow, so too does the need for stricter compliance and enforcement. The combination of tax notices, audits, and new licensing requirements signals a shift toward greater oversight in the crypto space.