The Income Tax Department of India has initiated an extensive investigation aimed at uncovering tax evasion and laundering of unreported income through cryptocurrency transactions. Data analytics has revealed significant violations of tax laws in this sector.
Investigation into Tax Violations
The Central Board of Direct Taxes (CBDT) has conducted a data analysis and identified numerous high-risk individuals and entities that reportedly failed to accurately report income from digital asset transactions in their tax returns. As part of a verification drive, the department has sent emails to thousands of such individuals urging them to update their income tax returns.
New Cryptocurrency Tax Rules
This initiative is tied to the introduction of new cryptocurrency tax regulations established in April 2022. Under these rules, income from cryptocurrencies is taxed at a flat rate of 30%, with no deductions allowed other than the cost of acquisition. Additionally, losses from crypto trading cannot be offset against other income.
CBDT's NUDGE Strategy
The investigation is part of the third NUDGE campaign aimed at encouraging taxpayers to voluntarily comply with the law. Previous NUDGE campaigns focused on undeclared foreign assets and fraudulent claims for deductions. Increased enforcement may lead to higher transparency but also raises concerns about overreach.
These investigations signal the Indian government's increasing focus on regulating the cryptocurrency sector and the potential for further action against non-compliant taxpayers.
