India's Tax Department Launches Crypto Evasion Probe After Data Review

India’s Income Tax Department has initiated a comprehensive investigation into tax evasion related to digital assets, including cryptocurrencies. This action follows the discovery of significant discrepancies in reported income from Virtual Digital Assets (VDAs) after a thorough data analytics review. The Central Board of Direct Taxes (CBDT) has identified a large number of individuals and entities suspected of concealing or underreporting income from crypto trades. Thousands of emails have been sent to these individuals, urging them to revise their Income Tax Returns (ITRs) and disclose all relevant earnings.

The CBDT has pinpointed a group of high-risk taxpayers who allegedly failed to comply with crypto tax rules. Many taxpayers did not report crypto income in the designated Schedule VDA section of their ITRs, while 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. Losses from crypto transactions cannot be carried forward or set off against other income. In July 2022, the government introduced a 1% TDS on all crypto trades, which has helped the tax department gain visibility into digital asset transactions and detect mismatches.

This effort is part of the CBDT’s ongoing “NUDGE” campaign, which stands for Non-Intrusive Usage of Data to Guide and Enable. This is the third such campaign in six months, with previous efforts focusing on unreported foreign assets and improper tax deduction claims under Section 80GGC. The 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.

This crackdown is part of a broader effort to curb tax evasion and money laundering through digital assets. The CBDT has flagged significant instances of tax evasion and the laundering of unaccounted income through crypto transactions. This has prompted the department to take stringent measures to enforce tax compliance and deter future evasion. The CBDT's investigation is not limited to individuals but also extends to entities that have underreported their crypto income. The department is scrutinizing financial records and transaction histories to identify discrepancies and ensure that all taxable income is accurately reported. This comprehensive approach aims to create a more transparent and accountable tax system, where all forms of income, including those from digital assets, are subject to taxation.

The crackdown has sent a clear message to taxpayers that the government is serious about enforcing tax laws and that evasion will not be tolerated. The CBDT's actions are expected to have a deterrent effect, encouraging greater compliance with tax reporting requirements. As the cryptocurrency market continues to evolve, the government's efforts to regulate and tax digital assets will be crucial in maintaining the integrity of the tax system.