CBDT Investigates Alleged Crypto-Linked Tax Evasion Amid India’s Shifting Regulatory Landscape
Income tax scrutiny intensifies as government balances taxation, enforcement, and future policy decisions
The Central Board of Direct Taxes (CBDT) is actively probing alleged tax evasion and money laundering through cryptocurrency investments, especially among high-risk individuals, according to a recent PTI report.
Income Tax Violations Under Scanner
The investigation reveals that some taxpayers:
- Failed to declare virtual digital asset (VDA) income in their returns
- Paid lower taxes by claiming cost indexation or incorrect treatment of crypto gains
The Income Tax Department is now cross-verifying ITRs with TDS filings submitted by crypto exchanges, issuing emails to thousands urging them to revalidate VDA-related income disclosures.
As per Section 115BBH of the Income Tax Act, gains on VDAs are taxed at a flat 30% rate, effective since the Finance Act of 2022.
India’s Mixed Stance on Crypto
While India began imposing strict tax rules on crypto in 2022—including 1% TDS on every trade—its overall stance is evolving:
- In 2023, the Financial Intelligence Unit (FIU) served notices to nine offshore exchanges, including Binance, KuCoin, and Bitfinex, for illegal operations in India.
- However, recent statements suggest a recalibrated approach is underway.
Policy Evolution Underway
Economic Affairs Secretary Ajay Seth recently noted that virtual assets “don’t believe in borders,” indicating India’s stance must align with global trends.
- The Supreme Court has also criticized delays in creating a regulatory framework, citing the 30% tax rate as implicit legal recognition of crypto.
Still, RBI Governor Sanjay Malhotra reiterated that the government remains cautious about crypto’s potential to destabilize financial systems.
Next Steps: A Policy Blueprint Expected
The government is expected to release a discussion paper this month outlining potential policy frameworks for crypto regulation, which may shape the next phase of digital asset governance in India.
As the CBDT sharpens its enforcement and India reconsiders its position, the future of crypto in the country hangs in the balance—poised between stringent oversight and regulatory maturity.
