India's tax authorities strengthen cryptocurrency regulation, crack down on VDA income tax evasion
Indian tax authorities have intensified the reporting requirements for cryptocurrencies, with thousands of taxpayers receiving notices of underreporting virtual digital asset (VDA) income. This action aims to uncover hidden profits made through digital tokens and potential money laundering activities.
According to Indian officials, the Central Board of Direct Taxes (CBDT) discovered many high-risk clients underreporting or failing to report after reviewing whether taxpayers declared cryptocurrency transactions in the VDA schedule. Due to inconsistencies in data from both sides, the tax authorities have launched investigations into several suspicious cases.
Under Section 115BBH of the Indian Income Tax Act, profits from the transfer of virtual digital assets (VDA) are uniformly taxed at 30%, allowing only the deduction of the original purchase cost, strictly prohibiting other deductions, and not allowing for loss offset or carry forward. Those engaging in violations will face penalties and fines.
This marks the third time in six months that the tax authorities have initiated the "NUDGE" action. Unlike the previous two audits, this action integrates bank transaction records, exchange TDS records, and on-chain data to guide taxpayers in proactively correcting their declarations through data comparison instead of surprise inspections. The earlier rounds of action investigated overseas asset concealment and false political donations.
For those making small transactions, the risks have increased. If they omit the virtual digital asset (VDA) schedule item in their tax filings, they will face tax demand notices and penalties. Meanwhile, exchanges must ensure accurate TDS reporting to prevent clients from being scrutinized by tax authorities.
Currently, the market's focus is on how traders and service providers will respond to the new policy. Some companies are expected to strengthen record-keeping measures, while others may reduce trading volumes to avoid high taxes.
In summary, although the Indian tax authorities' actions aim to regulate the cryptocurrency market and push it towards a more legal and transparent direction, the government must also provide clear guidance and reasonable starting timelines for tax collection to help market participants understand and comply with the new regulations.
What are your thoughts on India's strict tax scrutiny of cryptocurrencies? How should traders and service providers respond?
