• CBDT identified high-risk individuals underreporting crypto income using TDS data and analytics from VASPs.

  • Income from crypto is taxed at 30% with 1% TDS; cost indexation and loss set-offs are disallowed.

  • The probe is part of the CBDT’s third NUDGE campaign, urging voluntary correction before stricter actions.

In a major enforcement drive, India’s Income Tax Department has begun a wide-ranging investigation into tax evasion linked to digital assets, including cryptocurrencies. The action follows the discovery of large-scale discrepancies in reported income from Virtual Digital Assets (VDAs). These findings surfaced after a data analytics review conducted by the department. 

According to a report by the Times of India, the Central Board of Direct Taxes (CBDT) is now targeting individuals and entities suspected of concealing or underreporting income from crypto trades. Thousands of emails have already been sent to these individuals, prompting them to revise their Income Tax Returns (ITRs) and disclose all relevant earnings.

Tax Authorities Target Undisclosed Crypto Earnings

The CBDT has pinpointed a sizable group of high-risk taxpayers who allegedly failed to comply with crypto tax rules. According to officials, many taxpayers did not report crypto income in the designated Schedule VDA section of their ITRs. Others reported the income under incorrect tax slabs or applied disallowed cost indexation benefits. 

The department has launched a verification campaign to match ITRs against Tax Deducted at Source (TDS) data collected from Virtual Asset Service Providers (VASPs). India’s crypto tax structure, enforced from April 2022 under Section 115BBH of the Income Tax Act, sets strict reporting norms. All crypto earnings are taxed at a flat rate of 30%, with no deduction allowed except the purchase cost. 

Furthermore, losses from crypto transactions cannot be carried forward or set off against other income. In July 2022, the government also introduced a 1% TDS on all crypto trades. That provision has helped the tax department gain visibility into digital asset transactions and detect mismatches.

NUDGE Campaign Targets Crypto Non-Compliance

This effort forms part of the CBDT’s ongoing “NUDGE” campaign, Non-Intrusive Usage of Data to Guide and Enable. This is the third such campaign in six months. Previous NUDGE campaigns focused on unreported foreign assets and improper tax deduction claims under Section 80GGC. 

This latest push aims to bring crypto investors into full tax compliance through voluntary corrections before stronger measures are taken. Taxpayers who fail to comply may face stricter audits or formal investigations. The department has made it clear that further non-compliance could lead to detailed scrutiny.

The move represents an increasing use of data analytics in tax enforcement, with a focus on digital assets. Officials confirmed that the campaign’s purpose is to ensure accurate tax reporting through technology-driven verification. The current drive is expected to continue, with more data reviews and follow-ups already underway.