India has intensified its efforts to rein in tax evasion within the cryptocurrency sector, issuing over 44,000 tax notices to individuals who failed to report or underreported Virtual Digital Asset (VDA) income during the past two financial years. The Income Tax Department’s enforcement drive is part of a broader initiative to ensure compliance and accountability in the fast-growing but loosely regulated crypto market.
According to official reports, authorities discovered nearly ₹630 crore (approximately $75 million) in unreported income from VDA transactions across FY 2022–23 and 2023–24. This figure starkly contrasts with the ₹705 crore ($83.75 million) that was voluntarily reported during the same period, highlighting a significant compliance gap.
Digital Surveillance Powers Compliance Push
To identify potential defaulters, the Central Board of Direct Taxes (CBDT) has leveraged a series of advanced digital tools under its NUDGE (Non-Intrusive Usage of Data to Guide and Enable) initiative. This system incorporates Project Insight, the Non-Filer Monitoring System (NMS), and various internal tracking mechanisms to detect mismatches between reported incomes and actual transaction volumes.
Tax authorities have been matching data submitted by Virtual Asset Service Providers (VASPs), such as exchanges and wallets against individual income tax returns. When discrepancies emerged, especially in cases of missing Schedule VDA entries or undeclared profits, formal notices were dispatched to the concerned taxpayers.
Sources indicate that enforcement actions are already in motion, with some cases expected to escalate into audits or legal proceedings.
A Harsh Tax Policy Fueling an Exodus
India’s current crypto tax structure is among the most stringent globally. Profits from VDA transactions are taxed at a flat 30%, while every single crypto transaction is subject to a 1% Tax Deducted at Source (TDS). However, rather than promoting transparency, this tax regime has pushed many traders and companies towards more lenient jurisdictions.
Several Indian crypto startups have shifted base to countries like Singapore, Dubai, and the British Virgin Islands, which offer both regulatory clarity and lower tax burdens. Even major platforms such as WazirX have restructured operations by incorporating parent firms abroad to minimise domestic scrutiny, a move that drew attention following the platform’s $230 million hack.
Industry experts warn that India’s current approach, which emphasises revenue collection over ecosystem development, could hinder innovation and investment in the long term.
The Missing Piece in India’s Crypto Puzzle
One of the biggest challenges in India’s crypto landscape remains the legal ambiguity surrounding digital assets. While VDAs are taxed, they are not fully legalised or regulated, leaving investors and companies operating in a grey zone. The absence of a formal regulatory framework has led to confusion, inconsistent enforcement, and growing mistrust.
Globally, however, countries are taking proactive steps. The European Union’s MiCA (Markets in Crypto-Assets) framework and proposed U.S. stablecoin regulations are examples of efforts to balance innovation with accountability. These models provide both investor protection and industry guidance, allowing growth within a defined legal structure.
In contrast, India’s enforcement-heavy stance may secure short-term tax gains but risks long-term isolation of its crypto ecosystem.
Compliance Alone Won’t Secure the Future
India’s aggressive tax enforcement against crypto traders underscores the government’s commitment to increasing compliance. However, without a clear regulatory roadmap, the country risks alienating key players and stalling progress in a sector that thrives on clarity, trust, and innovation.
As other nations move toward integration and policy refinement, India must rethink its strategy not just to chase revenue, but to foster a secure, thriving digital asset market. A balanced approach combining compliance, innovation, and legal clarity is critical to keeping the crypto future within India’s borders.
