The Central Board of Direct Taxes (CBDT) has adopted a strict stance against those concealing income and evading taxes by investing in cryptocurrency.
New Delhi: In the digital age, cryptocurrency has emerged as a popular investment option. However, this modern investment avenue has also given rise to new methods of tax evasion. The Central Board of Direct Taxes (CBDT) has begun to tighten the screws on taxpayers who are not paying their due taxes despite earning substantial profits from cryptocurrency. Recently, the CBDT sent notices to thousands of individuals who did not declare or intentionally concealed their earnings from virtual digital assets in their income tax returns.
Tax Evaders Caught Through Data Analytics
The government now has access to technological tools that have made detecting tax evasion easier than before. The Income Tax Department cross-matched income tax returns with TDS returns filed by crypto exchanges. This cross-verification revealed that many individuals concealed their cryptocurrency earnings in their returns. The department specifically conducted this analysis for assessment years 2023-24 and 2024-25.
According to officials, many individuals did not include details related to virtual digital assets (VDA) in Schedule VDA of their income tax returns. Some applied the wrong tax rate, while others claimed deductions or exemptions not allowed under the law. This resulted in significant revenue loss for the government.
Strict Tax Regulations on Crypto Income
According to Section 115BBH, added to the Income Tax Act, 1961, under the Finance Act, 2022, a 30% tax is levied directly on income from the transfer of virtual digital assets. The applicable surcharge and cess must also be added. Importantly, losses incurred from such income cannot be adjusted against other income or carried forward to subsequent years.
This provision means that no tax benefit is allowed for losses incurred from crypto trading. The government has clearly indicated that its tax policy on crypto is extremely strict and transparent.
CBDT's NUDGE Strategy
The CBDT has launched an initiative called NUDGE to encourage voluntary compliance among taxpayers. This strategy aims to guide taxpayers towards compliance by first providing information and warnings. Under this, the Income Tax Department first alerts potential tax evaders through email or messages, encouraging them to rectify their mistakes voluntarily.
This is the third NUDGE campaign in the past six months. Previously, this strategy was used for disclosure of foreign income and assets and for cases of incorrect deductions under 80GGC. It is now being implemented for crypto transactions.
Why Strictness is Necessary
The number of crypto investors in India has increased rapidly in recent years. From small investors to large traders, everyone is showing interest. However, tax evasion has been easy in this unregulated and opaque market. Cryptocurrency transactions often remain off-the-radar because there are no physical documents, and transactions occur through digital platforms.
The government is concerned that a large number of people are making substantial profits from crypto but are not reporting them to the Income Tax Department. Therefore, strict adherence to regulations has become essential for creating a transparent and tax-friendly ecosystem.
What to Do After Receiving an Email Notice
Those who have received emails or notices from the CBDT should review their previous returns. If they did not declare crypto earnings or used the wrong tax rate, they must file a revised return. If the department is not satisfied with the response, penalties, interest, and even prosecution may follow.
According to tax experts, filing a revised return is a safer option, protecting taxpayers from future legal action.
Impact on the Market and Investors
This attempt to bring transparency to the crypto market is not meant to scare investors, but to encourage responsible investment. When investors comply with regulations, market confidence will increase. This will encourage long-term investment and legally empower the Indian crypto industry.
However, some investors fear that the government's strict measures may reduce investment trends. But experts believe that transparency and compliance are the foundation of a b digital economy.
Government Stance and Potential Measures
The government has already clarified that it will not recognize cryptocurrency as currency. However, the government accepts its use as an investment and asset class, but compliance with regulations and tax laws is mandatory.
In the future, it is possible that data sharing between the government and crypto exchanges will be strengthened. Furthermore, a centralized portal or monitoring system for monitoring crypto transactions may also be established.
