The Central Board of Direct Taxes (CBDT) is investigating tax evasion and laundering of unaccounted income by high-risk individuals through investments in cryptocurrencies such as Bitcoin, according to sources.
They added that data analytics have revealed a significant number of individuals have violated provisions of the Income Tax Act by either not filing the Schedule Virtual Digital Asset (VDA) section in their Income Tax Returns (ITRs), or by declaring their crypto income at lower tax rates or claiming cost indexation.
"Entities and individuals engaged in Virtual Digital Asset (VDA) transactions who have failed to comply with the Income-tax Act, 1961, have been identified for verification," a source noted.
Reliable sources confirm that the CBDT has recently sent emails to thousands of such defaulters, urging them to review and update their ITRs, especially if income from VDA transactions has not been properly declared.
Under Section 115BBH of the Income-tax Act, 1961—inserted via the Finance Act of 2022—a flat 30% tax (plus applicable surcharge and cess) is levied on income from the transfer of VDAs. The provision disallows any deductions, except for the cost of acquisition.
Moreover, losses from VDA investments or trading cannot be set off against other income, nor can they be carried forward to subsequent years.
The ITRs filed by taxpayers are being matched with TDS returns filed by Virtual Asset Service Providers (VASPs), popularly known as crypto exchanges. Defaulters may be shortlisted for further verification or scrutiny.
The CBDT has also launched a new initiative under its NUDGE (Non-intrusive Usage of Data to Guide and Enable) Taxpayers programme, as part of its TRUST Taxpayers FIRST philosophy. This is the third NUDGE campaign launched in the last six months—the earlier ones targeted foreign asset/income declarations and bogus deduction claims under Section 80GGC.
India’s crypto market is poised to grow from $2.6 billion in 2024 to over $13.9 billion by 2033, according to IMARC Group. However, India’s tough tax regime has pushed many users to shift to global platforms like Binance, KuCoin, Coinbase, and Bitget. Esya Centre estimates that 3–5 million users migrated to offshore exchanges in 2023 alone.
