• India cracks down on crypto tax evasion through advanced data analytics.
• High taxes push Indian traders to shift operations offshore.
• The government’s NUDGE campaign targets non-compliance in digital asset disclosures.

India’s Income Tax Department has started a new crackdown on tax evasion and money laundering linked to virtual digital assets (VDAs), including cryptocurrencies. The action is one of many steps undertaken by the Indian government to ensure adherence to tax legislation and enhance the transparency of the developing digital asset market.

High Crypto Taxes Push Indian Traders to Offshore Jurisdictions

According to officials and local media, the department has already singled out individuals and companies that carried out crypto transactions without adhering to the Income Tax Act, 1961. As a follow-up, thousands of taxpayers have already received official emails seeking to have them review and update their income tax returns (ITRs). These notices warn that if anyone did not report income from VDA transactions correctly, they may face verification or investigation.

Further, this crackdown is an activity in the ongoing series of the Central Board of Direct Taxes (CBDT) campaign, titled NUDGE. Non-intrusive Usage of Data to Guide and Enable is an initiative that employs next-level data analytics to monitor abnormalities. As a government source told CoinDesk, a significant number of taxpayers either failed to attach the mandatory Schedule VDA or attempted to underreport crypto income. Others still tried to take illegal deductions or cheaper tax rates.

It is the third NUDGE campaign so far in six months. The earlier two dealt with disclosures of foreign assets and bogus political contributions deductions provisions of Section 80GGC. The current push is among the broader initiatives by the government to encourage voluntary tax compliance as a part of its TRUST—Taxpayers First—strategy.

According to the Financial Times, the profit obtained in India through crypto trading is highly taxed. As of 2022, the government has decided to levy a 30 per cent flat tax on profits earning on digital assets, plus 1% tax deducted at source (TDS) on each transaction. Consequently, a large number of Indian crypto traders and companies have taken their trade to other countries where taxes are low.

India May Soften Crypto Stance Amid Global Shifts

This has led to growing concerns among industry players, who argue that the strict tax rules are stifling innovation and pushing investment out of the country. They are pushing the government to take a more moderate stance on cryptocurrency taxation, which they think would allow India to engage more meaningfully with the rest of the global digital economy.

Remarkably, according to some analysts, India might be currently changing its attitude towards cryptocurrencies. The Financial Times claims that the crypto industry is becoming more optimistic, partially thanks to global politics. The possibility of the reemergence of pro-crypto American leaders such as Donald Trump is regarded as informing the regulatory trend in India. Consequently, an increased number of crypto businesspeople are meeting with governmental officials, which provides a chance for discussion and change.

The current wave of tax notices covers Assessment Years 2023–24 and 2024–25. The differences occurred when reviewing the crypto-related disclosure in these periods. Although the Indian government has not yet recognized cryptocurrencies as legal tender, it increasingly expects all Virtual Digital Asset (VDA) transactions to follow tax regulations. As a result, users must ensure full tax compliance when engaging in crypto-related activities.

To sum up, the attempt to tighten tax collection in India regarding the crypto sphere represents the larger goal of controlling the digital economy. Meanwhile, indications of flexibility to change imply that a more proportionate regulatory future exists as a possibility.