Indian Government Intensifies Efforts Against Crypto Tax Evasion
The Indian government is ramping up its initiatives to tackle tax evasion within the cryptocurrency sector by employing a mix of cutting-edge technology and regulatory frameworks. By utilizing artificial intelligence (AI), machine learning, and digital forensics, tax officials aim to pinpoint unusual transaction behaviors and bolster adherence to taxation regulations concerning virtual digital assets (VDAs). This approach, along with targeted training programs for tax personnel, highlights a strategic effort to eliminate loopholes and enhance revenue collection from crypto-related income.
Capacity Building for Tax Officers
Under the guidance of the Central Board of Direct Taxes (CBDT), tax enforcement bodies have shifted their focus towards enhancing the skills of officers, including training in blockchain forensics in partnership with institutions like the National Forensic Science University in Goa. These educational initiatives are designed to arm officials with the necessary skills for managing digital evidence and analyzing blockchain data, which will facilitate better tracking of VDA transactions.
Challenges in Real-Time Data Matching
Despite these advancements, challenges remain in synchronizing crypto transaction data reported in tax returns with information from Virtual Asset Service Providers (VASPs). Currently, inconsistencies are identified by comparing Tax Deducted at Source (TDS) returns from VASPs to individual tax filings, rather than through real-time data matching.
NUDGE Campaign to Counter Underreporting
To combat underreporting of VDA transactions, the CBDT has initiated the NUDGE campaign, specifically targeting taxpayers who have not reported transactions exceeding 1 lakh rupees. Notifications are being dispatched to these individuals to encourage compliance with their tax responsibilities.
New Taxation Framework for Crypto Gains
Moreover, legislative measures such as Section 115BBH for the 2022-23 tax year impose a flat income tax rate of 30% on profits derived from cryptocurrencies, allowing only the cost of acquisition to be deducted. A 1% TDS is also applicable on certain transactions. These regulations resulted in tax collections of 437 crore rupees from VDA-related earnings during the fiscal year 2022-23, representing a notable increase from prior years.
Technology and Data Analytics in Enforcement
Technology is pivotal in enforcing these tax regulations. AI and machine learning applications are being utilized to identify anomalies in transaction patterns, while data analytics tools like the Non-Filer Monitoring System (NMS) and Project Insight compile data to uncover discrepancies. These platforms enhance the precision of compliance checks by cross-referencing information from various sources. Nonetheless, the lack of real-time data integration from VASPs signifies ongoing deficiencies, especially concerning cross-border transactions.
Global Crypto Exchanges Adapting to Regulations
The government’s initiatives have also prompted international crypto exchanges to align themselves with Indian regulatory standards. For example, Bybit, a prominent global exchange, has declared an 18% Goods and Services Tax (GST) on services rendered to Indian users, effective July 2025. This includes fees for trading, staking rewards, and withdrawals, indicating a broader commitment to complying with domestic tax regulations.
A Commitment to Transparency and Accountability
The amalgamation of technological advancements, regulatory enforcement, and international cooperation marks a significant transformation in India’s strategy towards crypto taxation. While obstacles such as refining real-time data matching and managing cross-border transaction complexities persist, the government’s proactive measures reflect a dedication to fostering transparency and accountability within the digital asset arena. For investors and exchange platforms alike, the message is unequivocal: compliance with tax obligations in crypto transactions is no longer a matter of choice.
