The Indian government has announced new tax measures for undeclared cryptocurrency gains starting February 1, 2025. These changes are linked to an amendment to the Income Tax Act and have significant implications for crypto investors.
Changes in Tax Legislation
The amendment to Section 158B of the Income Tax Act, introduced in the 2025 budget, classifies crypto assets as Virtual Digital Assets (VDAs), subject to the same tax treatment as cash, jewelry, and gold. This change requires crypto exchanges and financial institutions to report all transactions to tax authorities, increasing oversight in the industry.
Impact on Cryptocurrency Holders
The government is tightening its grip on cryptocurrency earnings by implementing retrospective taxation. Here's what crypto investors need to know: * Heavy penalties: Unreported gains from the past four years will face a penalty of up to 70%, plus additional interest and fines. * Mandatory reporting: Crypto transactions must be disclosed under Section 285BAA of the Income Tax Act. * Increased oversight: Authorities will conduct block assessments to identify undeclared crypto income. * Retroactive enforcement: The new tax regime applies from February 1, 2025, covering gains made in the last 48 months.
Global Market Trends
India's strict tax measures follow a series of enforcement actions in 2024. For instance, in December 2024, Indian tax authorities uncovered ₹824 crore ($97 million) in unpaid Goods and Services Tax from multiple crypto exchanges. Similar steps are being taken globally: In June 2024, the U.S. Internal Revenue Service introduced new reporting rules for digital assets. Despite strong opposition to these rules in the U.S. by crypto advocacy groups, India has taken an even stricter approach by imposing direct penalties on unreported gains.
The Indian cryptocurrency market faces increasing regulatory pressure, as the government enforces stricter tax policies. While India’s economic affairs secretary Ajay Seth has hinted at possible revisions to the country's stance on crypto, the immediate future points toward tighter financial scrutiny.
