By buld_online 
The Income Tax Department in India is taking decisive steps to ensure compliance among cryptocurrency investors. The department has reportedly contacted thousands of individuals who have failed to declare their cryptocurrency transactions in their income tax returns, urging them to correct their filings. This initiative is part of a broader strategy to address potential tax evasion in the burgeoning digital asset sector.
With the rise of cryptocurrencies and NFTs, classified as ‘Virtual Digital Assets’, the Indian government has established a firm tax regime. Gains from the transfer of these assets are taxed at a flat rate of 30%, irrespective of whether they are considered business income or capital gains. In addition, a 1% Tax Deducted at Source (TDS) is applied if the transaction values exceed certain thresholds. This ensures that the tax obligations are met upfront, reducing the chances of evasion.
The I-T department’s recent communication targets assessment years 2023-24 and 2024-25, focusing on taxpayers who might have omitted or misdeclared cryptocurrency income. This effort is part of the NUDGE campaign, which aims to remind taxpayers of their obligations under a ‘trust taxpayers first’ philosophy. Official sources described the number of such individuals as ‘significant’, indicating a widespread issue of non-compliance. The campaign is designed to be non-intrusive, yet effective in guiding taxpayers toward fulfilling their tax responsibilities.
Jignesh Shah, a partner at Bhuta Shah & Co LLP, highlighted the stringent nature of these tax provisions, stating, “In India, the Crypto Investments, e.g., cryptocurrencies, NFTs and other digital tokens are governed under the provisions relating to Virtually Digital Assets (VDAs). The provisions mandate a uniform tax rate of 30% (plus applicable surcharge and cess) irrespective of the nature of the income earned by a taxpayer.” This uniformity in taxation simplifies the process for both taxpayers and the authorities, ensuring clarity and consistency in tax compliance.
The tax regulations also stipulate that any VDAs received as gifts are taxable in the hands of the recipient if the value exceeds Rs 50,000 in a financial year. The ITD is conducting data analytics to identify discrepancies between declared income and TDS returns filed by cryptocurrency exchanges, suggesting that some individuals could face ‘verification or scrutiny’. This proactive approach helps in maintaining transparency and accountability, reinforcing the government’s commitment to a fair tax system.
These measures reflect the government’s broader initiative to curb potential money laundering and unaccounted income through cryptocurrency investments. The current taxation framework does not allow for loss offsets against other income, underscoring the government’s effort to streamline revenue collection from this sector. This ensures that the tax system remains robust and effective in capturing the economic activities associated with digital assets. The government’s vigilance in monitoring compliance is crucial as the digital asset market continues to evolve.
As the digital asset market continues to grow, investors are urged to comply with taxation requirements to avoid penalties. This initiative is the third in the ITD’s NUDGE series, following previous campaigns on foreign asset declarations and the withdrawal of bogus deduction claims. By fostering a culture of compliance, the ITD aims to build trust and ensure that all taxpayers contribute their fair share. The ongoing efforts to educate and guide taxpayers are pivotal in achieving long-term compliance and fiscal responsibility. The ITD’s strategy not only focuses on enforcement but also emphasizes the importance of taxpayer education, which is crucial in a rapidly changing financial landscape.
(With PTI inputs)