Indian tax authorities are taking strong action against people and businesses that are hiding their crypto earnings. The crackdown started after the government noticed that the majority were not reporting gains they made form crypto which is mainly in Bitcoin and Ethereum.
According to Bloomberg, the Central Board of Direct Taxes (CBDT) is now investigating these tax evasions and money laundering involving digital assets.
Their profits are taxed at a flat rate of 30% under Section 115BBH of the Income Tax Act. In short, any gains from these assets are taxed heavily, but most people are evading this tax.
The CBDT has often used data analysis to pinpoint individuals and companies that are involved in suspicious crypto transactions. Many of these people have been sent emails from the tax department. Thousands of similar notices have been sent to persons suspected to be in default.
The crackdown is attributed to the Prevention of Money Laundering Act (PMLA), which was recently updated in March 2023 to include crypto transactions. According to the Finance Ministry, Dealers and exchanges must perform Know Your Customer (KYC) checks and keep records of user activity and transactions, just like banks. “This will enable the government to keep a closer watch on the crypto trading activities,” said Shashank Agarwal, Advocate, Delhi High Court.
The government introduced clear tax rules for Virtual Digital Asset (VDA) transactions in the Union Budget 2022. Besides the 30% tax on profits, there is also a 1% Tax Deducted at Source (TDS) on every crypto transaction under Section 194S of the Income Tax Act.
More notices may be issued soon, and legal action could follow for those who continue to ignore the rules.
Also Read: India’s Crypto Dilemma: Can growing Institutional Adoption Enable Regulatory Clarity?
