India to introduce new rules for identifying undeclared crypto assets

Key points:

• India’s Central Board of Direct Taxes (CBDT) is tightening control over cryptocurrency taxation by identifying undeclared assets and liquidity shortages.
• More than 6,3 billion Indian rupees in taxes and undisclosed income related to cryptocurrencies have been identified.
• The industry is advocating for the creation of a single regulatory body to eliminate jurisdictional duplication.

Indian tax authorities are increasing their focus on cryptocurrency transactions and undeclared assets. The Central Board of Direct Taxes (CBDT) has initiated formal consultations with cryptocurrency exchanges and industry participants to improve the existing tax system and address issues such as liquidity shortages and regulatory uncertainty.

Over the past two years, tax revenues related to cryptocurrencies have generated approximately 705 crore rupees ($7,05 billion) in revenue. At the same time, audits have revealed an additional 630 crore rupees ($6,3 billion) in undisclosed income from virtual digital assets (VDA), highlighting the scale of the violations.

How does a tax audit work?

As part of its fight against undeclared income, the CBDT has sent notices to more than 44 000 crypto traders for failing to declare their income. These measures are being implemented through the NUDGE campaign, which aims to encourage voluntary compliance.

The agency uses advanced technologies such as Project Insight and the Non-Filer Monitoring System (NMS) to track discrepancies between tax returns and tax withholding data from exchanges. These measures reflect a data-driven approach to identifying tax evasion and increasing transparency in a sector prone to speculative and opaque activities.

Why the tax system is controversial

The current tax policy on cryptocurrencies in India remains complex and inflexible. Under Section 115BBH of the Income Tax Act, capital gains from cryptocurrency trading are taxed at a flat rate of 30% without allowing for losses.

In addition, a 1% withholding tax applies to each transaction exceeding a set threshold, which contributes to reduced liquidity on domestic exchanges. Industry representatives consider these rates excessive and detrimental to long-term investment. As a result, many traders prefer to move to jurisdictions with more favorable regulatory conditions.