The tax authorities of India are tightening oversight over the crypto community. This week, the parliament has been informed that the Central Board of Direct Taxes (CBDT) has sent 44,057 messages and mails to crypto traders who invested in these assets but failed to accurately report the transactions.
Pankaj Chaudhary, the Minister of State for Finance, divulged the information to the Upper House during the ongoing Parliamentary monsoon session in New Delhi, media reported.
“The total amount of tax offered by the taxpayers for FY 2022-23 and FY 2023-24 was equal to Rs. 705 crore,” reports quoted Chaudhary as saying. He also reportedly noted that the undisclosed income tied to crypto transactions are estimated to be around Rs. 705 crore.
Back in March, Indian finance minister Nirmala Sitharaman spoke about a “NUDGE” campaign, under which around 19,501 select taxpayers were reached out asking them to review their Income Tax Returns filed for the 2024-25 period, based on the information available to Income Tax of foreign deposits etc. At the time, Sitharaman claimed that, “11,162 taxpayers did revise their returns and filled Schedule Foreign Assets Form, declaring total assets of Rs. 11,259.29 crores disclosing foreign income of Rs. 154.42 Crores.”
Members of the crypto community were also reached out this NUDGE campaign.
Decoding India’s tax tracking mechanism for crypto investors
Speaking to CoinHeadlines, Sonu Jain, who works with crypto traders to file their taxes said that the Income Tax Department is classifying crypto income as high-risk category and is hence increasing scrutiny.
In order to track potential tax evaders, the Indian authorities are using the TDS data obtained from centralized exchanges along with their discretionary power under section 131 to obtain trading information of users from exchanges and analyzing data from various countries through information sharing agreements.
“Crypto traders must ensure they accurately report all trading activity across exchanges and wallets under Schedule VDA in their Income Tax Returns (ITR). Additionally, individuals with a total income exceeding Rs.1 crore are now required to disclose the total value of their crypto asset holdings in the ITR,” the Chartered Accountant highlighted.
While Jain suggested investors to avoid unnecessary complications by waiting for a tax notice, some feel that India’s strategy to catch tax fraud is somewhat invasive.
Last week, Chaudhary had claimed before the parliament that crypto assets are currently unregulated in the country and that the government is not collecting data on these assets for now. In contrast, Ravi Agrawal, the chairperson of India’s central board of direct taxes (CBDT) recently revealed that the country is deploying Artificial Intelligence (AI) tools to crack down on those exploiting crypto for tax evasions and money laundering.
Building on this, Sudhakar Lakshmanaraja, founder of the Digital South Trust (DST) said the ongoing financial surveillance is concern-worthy. DST is a web3 skill development non-profit organization.
“Despite claiming crypto is unregulated, the Indian government is tracking transactions through backend tax trails. AI tools match TDS from exchanges with Income Tax Returns to flag discrepancies. It’s surveillance without regulation, quiet enforcement masked as policy ambiguity,” Lakshmanaraja told CoinHeadlines.
India’s Finance Ministry started taxing crypto transactions in 2022. Incomes generated through crypto activities are taxed at 30 percent whereas one percent TDS is cut on each step of a crypto transactions exceeding Rs. 10,000. Despite several requests to reduce the tax rate, the Finance Ministry is not considering any changes in its existing crypto tax regime.