• The CBDT has sent emails to thousands of taxpayers asking them to recheck and update income earned via virtual digital assets (VDAs).
  • As per Section 115BBH of the Income Tax Act, 1961, VDA gains are taxed at a flat 30% rate with no deductions or offsets allowed.

The Central Board of Direct Taxes (CBDT) has launched a probe into suspected tax evasion and laundering of unaccounted wealth through cryptocurrency investments.

According to a report by PTI, the agency is focusing on high-risk individuals who may have violated the Income Tax Act by failing to declare income gains on virtual digital assets (VDAs).

CBDT’s investigation reportedly uses data analytics to identify mismatches between the income tax returns (ITR) filed by individuals and the tax deducted at source (TDS) submitted by Indian crypto exchanges.

Several taxpayers are believed to have either omitted VDA gains in their ITRs or paid lower taxes by wrongly applying cost indexation benefits.

To address discrepancies, the department has sent emails to thousands of taxpayers, urging them to recheck and update any VDA-related income details.

As per Section 115BBH of the Income Tax Act, 1961, introduced via the Finance Act, 2022, gains from VDA transactions are taxed at a flat rate of 30%. The act also prohibits deductions or offsets, making the tax structure for crypto gains particularly stringent.

India's Evolving Crypto Policy Landscape

The Indian government has taken an increasingly cautious approach to digital currencies. In 2022, it imposed both a 30% tax on crypto gains and a 1% TDS on every crypto transaction.

In 2023, the Financial Intelligence Unit (FIU) sent notices to nine offshore crypto exchanges, including Binance, Kucoin, and Bitfinex.

Although the Centre once maintained a firm stance, recent remarks by Economic Affairs Secretary Ajay Seth reflect a shift. He acknowledged that digital assets transcend borders and hinted at a more coordinated global approach.

Meanwhile, the Supreme Court recently questioned the government’s delay in crypto regulation, suggesting the 30% tax implies “a form of legal recognition.” A detailed policy framework on crypto assets is expected later this month.

Edited by Annette George