The Indian Income Tax Department (ITD) has intensified its crackdown on undisclosed cryptocurrency income, sending out notices to thousands of investors who failed to report earnings from Virtual Digital Assets (VDAs) such as cryptocurrencies and NFTs. With the implementation of a flat 30% tax on gains from VDAs, tax authorities are making compliance a top priority.
What Are Virtual Digital Assets (VDAs)?
Under Indian tax laws, VDAs refer to any form of digital information, tokens, numbers, or codes generated through cryptographic or similar technologies. This includes widely known digital currencies like Bitcoin, Ethereum, and newer assets such as Non-Fungible Tokens (NFTs).
IT Department’s Nudge Campaign Targets Non-Compliant Crypto Investors
In its latest phase of the NUDGE campaign, the Income Tax Department has begun contacting taxpayers for the Assessment Years 2023–24 and 2024–25. These communications are directed at individuals who may have underreported or failed to disclose income earned from digital assets.
The campaign operates under a “Trust, But Verify” model, encouraging voluntary compliance without immediate enforcement action. However, sources suggest that a “significant” number of taxpayers are under scrutiny due to discrepancies found in data analytics and TDS filings by crypto exchanges.
Uniform Taxation Regime for Crypto Gains
India has adopted a uniform taxation policy for digital assets, taxing all gains from the transfer of VDAs at a flat rate of 30%, regardless of whether the income is classified as business or capital gains. On top of that, a 1% Tax Deducted at Source (TDS) applies to transactions exceeding specified thresholds, ensuring upfront compliance.
Tax expert Jignesh Shah, Partner at Bhuta Shah & Co LLP, emphasized, “Crypto assets such as cryptocurrencies, NFTs, and other digital tokens fall under the Virtual Digital Asset tax regime, which imposes a consistent 30% tax rate (plus surcharge and cess) on all forms of income from these assets.”
Gifts and Loss Provisions Under VDA Rules
Another key provision is that gifts of VDAs exceeding Rs. 50,000 in value in a financial year are taxable in the hands of the recipient. Importantly, losses incurred from VDA investments cannot be offset against any other income, making accurate tax planning critical for investors in this space.
Data-Driven Scrutiny by Tax Authorities
The ITD is leveraging advanced data analytics to match TDS returns filed by crypto platforms with individual income tax returns. Mismatches or unreported transactions may lead to notices, further verification, or scrutiny assessments.
Government Pushes for Transparency and Compliance
These actions are part of the government’s broader mission to prevent money laundering, tax evasion, and the circulation of unaccounted income through digital assets. The current tax structure ensures that the digital asset sector remains accountable and contributes its fair share to the economy.
This initiative also marks the third campaign under the ITD’s NUDGE framework, following earlier drives targeting foreign asset disclosures and bogus deduction claims.
Key Takeaways for Crypto Investors
As the digital asset market continues to expand, investors are strongly urged to:
- Disclose all crypto income in their income tax returns.
- Ensure accurate reporting of VDA gains and TDS credits.
- Avoid misreporting or omitting digital asset transactions.
- Understand that non-compliance can lead to penalties, verification, or legal action.
Conclusion
With increased oversight and a firm tax framework in place, India’s stance on digital asset taxation is clear. The government is fostering a culture of tax compliance while ensuring transparency and fairness in the rapidly evolving crypto ecosystem. As the ITD continues to educate and guide taxpayers, staying informed and compliant is now more critical than ever for every crypto investor in India.