India’s Crackdown on Cryptocurrency Tax Evasion
India is intensifying its crackdown on tax evasion linked to cryptocurrency investments, with the government identifying significant hidden income through strategic data analysis. Pankaj Chaudhary, the Union Minister of State for Finance, informed the Rajya Sabha this week about the government’s ongoing efforts to combat tax fraud within the burgeoning crypto market.
Government Actions and Campaigns
Chaudhary revealed that the Central Board of Direct Taxes (CBDT) has uncovered numerous cases of tax evasion related to virtual digital assets (VDAs). According to him, the Income Tax Department has been actively taking enforcement actions under the Income Tax Act of 1961, which may involve provisions such as:
- Nudging taxpayers for compliance
- Conducting e-verifications
- Reassessing returns
- Executing search-and-seizure operations when necessary
To boost taxpayer compliance, the CBDT has initiated the NUDGE campaign—standing for Non-Intrusive Usage of Data to Guide and Enable—specifically targeting individuals who have engaged with VDAs but failed to report these transactions on their income tax returns. Chaudhary disclosed that over 44,000 notifications have been dispatched via email and text messages to these investors.
Financial Impact of Enforcement Measures
Financial figures presented by the Minister illustrate the significant impact of these enforcement measures. The new tax structure for VDA transfers, established in the fiscal year 2022-23 under section 115BBH, has already generated revenues of ₹705 crore (approximately $80.50 million) in declared taxes for FY 2022-23 and FY 2023-24. Furthermore, through ongoing investigations, the Income Tax Department has identified an astonishing ₹630 crore (around $71.94 million) in previously unreported income from cryptocurrency-related activities.
Proactive Measures for Compliance
Chaudhary emphasized the proactive measures taken by the CBDT to ensure compliance in reporting income from crypto transactions. These efforts include employing sophisticated data analytics tools, such as the Non-Filer Monitoring System (NMS) and Project Insight, to reconcile taxpayer disclosures with available information on VDA transactions. He also noted that Tax Deducted at Source (TDS) returns reported by virtual asset service providers are meticulously cross-checked against taxpayer filings to identify discrepancies.
