Under the Central Board of Direct Taxes (CBDT), the Income Tax Department has made another round of compliance more impactful by issuing tax notices on crypto and VDA investments to thousands of people in India. The decision has been taken with a consideration for increased worry over tax evasion and unreported investments in the digital asset sector.
These are part of a particular campaign for non-disclosing taxpayers who did not report their income earned from cryptocurrencies and other virtual digital assets (VDAs) in their Income Tax Returns (ITRs). The notices are intended to be a reminder to investors who might have forgotten that they are supposed to report income earned from cryptocurrency or have not complied with the relevant tax provisions.
What Triggered the Tax Notices?
Tax officials have been employing advanced data analytics to monitor transactions on virtual digital asset platforms. Cross-verifying each ITR with TDS returns filed by crypto aggregators and exchanges revealed discrepancies. Taxpayers who failed to report transactions in Schedule VDA or under-reported their gains are now in the limelight.
The CBDT is also acting on intelligence from various domestic as well as global sources to intercept high-value transactions, particularly the ones which were conducted on foreign crypto trading sites. The ones attempting to evade Indian laws using foreign sites are closely monitored.
Know the Taxation Norms for Crypto and VDA
With effect from April 1, 2022, all revenues earned from VDAs like cryptos and NFTs are taxed at a fixed rate of 30% (Plus 4% cess) under Section 115BBH of the Income Tax Act. Additionally, a 1% TDS is charged at source on crypto transactions (Sale consideration) exceeding Rs 50,000 in a financial year.
Points under the tax regime are as follows:
- No deductions other than the cost of acquisition.
- You cannot offset crypto losses against any other income.
- Report all crypto transactions accurately in your ITR.
For the investor, this implies correct reporting and filing of TDS returns is of paramount importance. Mismatch of TDS collected on platforms and reported income may result in a notice or scrutiny by default.
Voluntary Compliance Through Nudges
As per its “nudge” strategy, the CBDT is offering taxpayers an opportunity to correct their returns without imposing penalties immediately. The approach encourages voluntary compliance and nudges taxpayers to revisit their ITRs and make corrections when necessary.
Taxpayers who receive these notices must
- Go back to ITR filings for FY 2022-23 and FY 2023-24.
- Verify income from crypto investments with Form 26AS and AIS returns.
- Utilize ITR-U under Section 139(8A) to file a revised return, if needed.
- Keep a proper record of transactions with date, amount, and platform details.
Implications and the Road Ahead
It’s not the first time the CBDT has been focusing on crypto investors, but the latest series of tax notices is larger in scale and more fact-based. The government aims to promote transparency and prevent the use of digital assets for concealing or laundering unaccounted income.
As India’s crypto ecosystem expands at a staggering pace, and user numbers approach millions, regulatory supervision cannot but increase. Tax alerts against crypto and VDA investments are likely to become the new normal in enforcement shortly, even more so as the authorities improve their monitoring systems.
Investors must take this as a wake-up call. In the future, correct reporting and timely submission of TDS returns filing aren’t just good sense. They are necessary to stay on the right side of the law.
Conclusion
The CBDT’s action reflects a clear shift toward stricter monitoring of digital asset investments. If you’ve engaged in crypto or VDA transactions, now is the time to review your tax filings and ensure full compliance to avoid legal and financial consequences.
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