As India intensifies its regulatory oversight of the cryptocurrency sector, tax authorities have initiated an unprecedented engagement with market participants to refine tax compliance frameworks and reporting standards. The taxation of cryptocurrency gains is governed by a flat 30% rate under Section 115BBH, introduced in the Union Budget 2022, with additional surcharges and a 4% health and education cess further increasing the effective tax burden. From the fiscal year 2024-25 onwards, a 1% Tax Deducted at Source (TDS) on every crypto transaction has been implemented to enhance tracking and ensure adherence to tax regulations. Taxpayers are required to report gains precisely in designated Income Tax Return (ITR) forms—ITR-2 for capital gains or ITR-3 if the income is business-related—using a specialized ‘Schedule VDA’ to capture detailed disclosures. This classification of cryptocurrencies as Virtual Digital Assets significantly impacts taxation and reporting requirements. TDS rules remain unchanged post-Budget 2025, maintaining consistent compliance standards.
The Indian government has escalated enforcement efforts, issuing over 44,000 notices to individuals who failed to report cryptocurrency transactions, accompanied by reminders sent via email and SMS. The Central Board of Direct Taxes (CBDT) has conducted surveys and search-and-seizure operations to enforce compliance rigorously. Initiatives like the NUDGE campaign (Non-Intrusive Usage of Data to Guide and Enable) have been launched to encourage voluntary disclosure of crypto income prior to the initiation of legal proceedings. These measures reflect a strategic priority to mitigate risks associated with money laundering, illicit activities, and tax evasion in the rapidly expanding crypto sector.
Reporting obligations are stringent, and non-compliance may result in penalties, interest, or reassessment orders. Undisclosed virtual digital assets (VDAs) identified during searches are subject to a retrospective 60% tax rate without exemptions, effective from February 1, 2025. Non-Resident Indians (NRIs) returning to India must also disclose prior crypto holdings and gains accurately. Legislative amendments, including those introduced in Budget 2025, underscore a broad regulatory tightening, with uniform tax treatment extended to all VDAs, including major cryptocurrencies like Bitcoin and Ethereum. The government continues to adjust compliance mechanisms and forms, aiming to bolster transparency and regulatory efficiency amid the evolving landscape.
