Indian Tax Authorities Use AI to Detect Crypto Evasion Collect 437 Crore Rupees

The Indian government is intensifying its efforts to combat tax evasion in the cryptocurrency sector through a combination of advanced technology and regulatory measures. By leveraging artificial intelligence (AI), machine learning, and digital forensics, tax authorities aim to identify suspicious transaction patterns and improve compliance with virtual digital asset (VDA) taxation rules. These initiatives, coupled with specialized training programs for tax officers, underscore a strategic push to close loopholes and enhance revenue collection from crypto-related earnings.

Under the Central Board of Direct Taxes (CBDT), tax enforcement agencies have prioritized capacity-building for officers, including blockchain forensics training delivered through collaborations with institutions like the National Forensic Science University in Goa. These programs focus on equipping officials with expertise in digital evidence handling and blockchain analysis, enabling more effective tracking of VDA transactions. However, challenges persist in real-time matching of crypto transaction data reported in tax returns with information from Virtual Asset Service Providers (VASPs). Instead, discrepancies are currently flagged by comparing Tax Deducted at Source (TDS) returns from VASPs with individual tax filings [1].

To address underreporting, the CBDT launched the NUDGE campaign, which targets taxpayers who failed to disclose VDA transactions exceeding 1 lakh rupees. Communications are being sent to these individuals, urging compliance with tax obligations. Meanwhile, legislative frameworks such as the 2022-23 tax year’s Section 115BBH impose a flat 30% income tax on crypto profits, with no deductions permitted except the cost of acquisition. A 1% TDS also applies to certain transactions. During FY 2022-23, these measures generated 437 crore rupees in tax collections from VDA-related incomes, marking a significant increase compared to previous years [2].

Technology remains central to enforcement. AI and machine learning tools are being deployed to detect anomalies in transaction patterns, while data analytics platforms like the Non-Filer Monitoring System (NMS) and Project Insight aggregate information to flag inconsistencies. These systems help cross-reference data from multiple databases, improving the accuracy of compliance checks. However, the absence of real-time VASP data integration highlights ongoing gaps in the system, particularly for cross-border transactions [1].

The government’s efforts have also prompted global crypto exchanges to align with Indian regulations. For instance, Bybit, a major international exchange, announced an 18% Goods and Services Tax (GST) on services for Indian users, effective July 2025. This includes trading fees, staking rewards, and withdrawals, reflecting a broader shift toward compliance with local tax mandates [1].

The combination of technological innovation, regulatory rigor, and international cooperation signals a decisive shift in India’s approach to crypto taxation. While challenges remain, such as refining real-time data matching and addressing cross-border complexities, the government’s proactive stance demonstrates a commitment to transparency and accountability in the digital asset space. For investors and exchanges, the message is clear: tax compliance in crypto transactions is no longer optional [2].

Source: [1] [title: Indian Government Deploys Tech to Tackle Crypto Tax Evasion] [url: https://www.livebitcoinnews.com/indian-government-deploys-tech-to-tackle-crypto-tax-evasion/] [2] [title: Indian Government Cracks Down on Crypto Tax Evasion Using AI, Collects ₹437 Crore] [url: https://www.businesstoday.in/personal-finance/tax/story/indian-government-crypto-tax-compliance-ai-data-analytics-virtual-digital-assets-486476-2025-07-26]