India Intensifies Crypto Tax Crackdown With 30% Gains Tax

India’s tax authorities have intensified their scrutiny on cryptocurrency traders, issuing mass notices to individuals suspected of underreporting their gains. This crackdown comes as part of the government's efforts to enforce compliance with the stringent tax rules imposed on virtual digital assets (VDAs), including cryptocurrencies, since April 2022. The tax regime mandates a 30% tax on gains from VDAs, with no allowance for offsetting losses from other VDAs. Additionally, a 1% tax deducted at source (TDS) is required on transactions exceeding Rs. 10,000, further complicating the regulatory landscape for traders and exchanges.

The notices sent by the tax department are aimed at ensuring that traders who failed to report their crypto earnings in the fiscal years 2022–23 and 2023–24 correct their filings using the updated return option. This move is part of a broader effort to address concerns about tax evasion and cybercrime, which have been on the rise in the country. Authorities suspect that some traders have exploited the lack of detailed reporting standards during the early days of regulation to evade taxes. CoinDCX Co-founder Sumit Gupta has advised all users to report their crypto income, including earnings from airdrops or global exchanges, emphasizing the need for compliance with the new tax rules.

The current tax policy, which includes a 30% capital gains tax on digital assets, no loss offset, and a 1% TDS on transactions, has created significant barriers to growth for the crypto industry. Top global exchanges like OKX have exited the Indian market due to these tough regulations, and even homegrown platforms are feeling the pressure. Local exchanges are pushing for reforms, including reducing the TDS rate from 1% to 0.01% and allowing losses to be offset against gains. However, the government's focus on compliance and safety, driven by the rise in crypto-linked cybercrimes, has made authorities hesitant to embrace more liberal crypto policies.

Recent cases of crypto-related cybercrimes have further fueled regulatory caution. The Central Bureau of Investigation (CBI) has arrested individuals involved in crypto scams, seizing significant amounts of digital assets tied to fraudulent activities. The CBI has also built in-house systems to track and seize crypto, indicating the government's commitment to creating a safer crypto environment before relaxing policies. The GainBitcoin scam, which involved over $800 million in fraud, led to raids on 60 locations and the seizure of $2.9 million in digital assets, highlighting the severity of the issue.

Despite the challenges, India is not entirely against cryptocurrency. The government's stance is one of caution, prioritizing compliance and safety over rapid liberalization. The focus remains on establishing a robust regulatory framework that can address the risks associated with digital assets while fostering innovation and investment. Until such a framework is in place, a truly crypto-friendly economy may remain out of reach. The current situation underscores the need for clearer guidelines and more favorable tax policies to support the growth of the cryptocurrency market in India.