India uncovers $72 million in hidden crypto income through tax audits

India’s tax enforcement efforts have led to the discovery of approximately ₹630 crore ($72 million) in undisclosed income from crypto-related transactions, as revealed by Finance State Minister Pankaj Chaudhary on August 5. The undisclosed amounts were identified through discrepancies in tax filings related to Virtual Digital Asset (VDA) trades, according to data provided by the Central Board of Direct Taxes (CBDT) [1]. This development underscores the growing focus of Indian authorities on improving transparency in the crypto market and tightening tax compliance.

In tandem with the discovery of unreported income, the government has collected ₹705 crore (over $80 million) in taxes from digital asset gains over the past two financial years. This revenue comes from individuals who voluntarily disclosed crypto earnings under the tax regime that came into effect in April 2022 [1]. These figures highlight a growing awareness among Indian taxpayers about the obligations surrounding virtual assets, driven in part by heightened regulatory scrutiny.

To address the issue of non-compliance, Indian tax authorities have issued more than 44,000 notices to individuals and entities that failed to report crypto-related earnings. The enforcement measures are part of a broader initiative aimed at fostering transparency in the digital asset economy and strengthening a culture of tax responsibility [1].

The CBDT has also deployed advanced data analysis tools, including the Non-Filer Monitoring System (NMS) and Project Insight, to enhance the accuracy of tax reporting. These systems cross-check VDA transaction data with Income Tax Returns (ITRs) and TDS returns submitted by Virtual Asset Service Providers (VASPs), enabling the identification of inconsistencies and facilitating corrective actions [1]. These technological interventions represent a strategic step toward improving oversight in a rapidly evolving market.

Despite these efforts, some within the industry have raised concerns about the impact of India’s current crypto tax regime. Critics argue that the combination of a 30% capital gains tax and a 1% tax deducted at source on every trade has driven millions of traders to offshore platforms, where regulation is less stringent [1]. This shift not only weakens domestic market participation but also diminishes potential tax revenue for the government.

Industry experts suggest that India could significantly increase its annual crypto tax collections—potentially surpassing ₹5,000 crore—by creating a more competitive domestic trading environment. A more balanced policy approach, they argue, could encourage long-term investment, reduce reliance on offshore exchanges, and position India as a global hub for digital finance [1].

The ongoing regulatory and enforcement initiatives reflect the Indian government’s commitment to integrating digital assets into the formal financial system. However, the challenge lies in balancing compliance with the need to foster innovation and maintain investor confidence.

Source: [1] India finds $72 million in hidden crypto income as tax compliance tightens (https://cryptoslate.com/india-finds-72-million-in-hidden-crypto-income-as-tax-compliance-tightens/)