The government has once again made it clear that crypto assets remain unregulated in India, but that does not mean crypto investors are outside the tax and enforcement net.
In a written reply in Parliament, the Finance Ministry said that while the government does not collect data on crypto holdings, tax evasion and illegal use of crypto are being actively tracked and acted upon by multiple agencies.
Replying to a question in the Lok Sabha, Minister of State for Finance Pankaj Chaudhary said crypto assets or virtual digital assets (VDAs), including NFTs, are currently unregulated. “However, notwithstanding this, the Government has brought the sector under the Financial Intelligence Unit’s regulatory ambit for anti-money laundering and combating the financing of terrorism,” he said.
How govt is tracking crypto misuse
According to the reply, crypto service providers are now required to register with Financial Intelligence Unit – India (FIU-IND) and follow strict norms such as customer due diligence, record-keeping and reporting of suspicious transactions. FIU-IND analyses these reports and shares actionable intelligence with law-enforcement agencies.
The Enforcement Directorate has already investigated several crypto-linked cases under the Prevention of Money Laundering Act (PMLA). The government said proceeds of crime worth Rs 4,209.74 crore have been attached or seized so far, 29 people arrested, and 24 prosecution complaints filed. One accused has also been declared a fugitive economic offender.
Income Tax Dept stepping up action
On the tax front, the reply makes it clear that crypto investors cannot skip disclosures. The government said the Income Tax Department takes “appropriate action” wherever tax evasion linked to VDAs is detected, as per the Income-tax Act, 1961.
“Necessary action such as nudging taxpayers, e-verification, reassessment, survey or search and seizure is taken,” the reply said. The Central Board of Direct Taxes (CBDT) has also launched its NUDGE campaign to push voluntary compliance.
Under this campaign, the department has already sent communications to taxpayers who carried out crypto transactions but failed to disclose them in Schedule VDA of their Income Tax Returns. Data analytics tools like Project Insight are being used to match crypto transaction data with ITR disclosures.
Even benami and foreign crypto covered
The government has also clarified that other stringent laws apply to crypto assets as well. The Benami Property Transactions Act can be invoked if VDAs are held benami, while the Black Money Act applies to undisclosed foreign crypto assets.
Separately, the Reserve Bank of India has repeatedly warned users that dealing in VDAs carries economic, financial, legal and security risks. RBI has also advised banks and financial institutions to continue strict KYC, AML and CFT checks for crypto-related transactions.
How crypto is taxed in India
From a tax perspective, the rules are already clear. Any gains from virtual digital assets are taxed at a flat 30%, plus applicable surcharge and 4% cess, under Section 115BBH of the Income-tax Act. No set-off of losses or deductions is allowed.
For disclosure, taxpayers must report crypto transactions transaction-wise under Schedule VDA in ITR-2 or ITR-3. The income is taxed at the special 30% rate, irrespective of the taxpayer’s income slab.
What this means for crypto holders
The message from the government is straightforward: crypto may be unregulated, but it is not untaxed or unchecked. Investors holding or trading in crypto assets must disclose transactions accurately in their ITRs, or face scrutiny and enforcement action later.
With data analytics, cross-verification and targeted nudges now in place, hiding crypto income is becoming increasingly difficult — and potentially costly.