India Highlights Cryptocurrency Tax Risks

Indian Tax Authorities Raise Concerns Over Cryptocurrency Transactions

India's tax authorities have expressed concerns regarding cryptocurrency transactions, warning that these may complicate tax enforcement. The Income Tax Department (ITD), under the Central Board of Direct Taxes (CBDT), highlighted significant issues related to cryptocurrency activities during a parliamentary committee meeting on financial matters, according to an article published by The Times of India.

The warning was issued during a meeting that involved multiple agencies, including the Financial Intelligence Unit (FIU), the Revenue Department, and CBDT, discussing the report titled "A Study on Virtual Digital Assets (VDAs) and Future Directions." ITD emphasized the challenges posed by offshore exchanges, private wallets, and decentralized finance (DeFi) tools, which complicate the detection of taxable income.

During the meeting, ITD officials noted how "anonymous, borderless, and nearly instantaneous" value transfers through cryptocurrencies allow funds to be moved without regulated financial intermediaries. The authority also pointed out the jurisdictional challenges created by offshore VDA activities. With multiple jurisdictions involved, tracking transactions and identifying holders for tax purposes is "almost impossible," ITD added.

"Although there have been efforts in recent months regarding information exchange, it remains difficult, hindering officials' ability to make accurate assessments and reconstruct transaction chains," the report states. India imposes a fixed tax of 30% on all profits from crypto asset activities, along with a 1% tax deduction at source (TDS) applicable to all transfers, whether profitable or not.

While India formally allows trading registrations for cryptocurrencies under this strict tax regime and has approved the return of major U.S. exchange Coinbase in 2025, the government's overall stance towards cryptocurrencies remains cautious and mixed. Local executives have previously emphasized that India's cryptocurrency ecosystem is at a crucial stage, with growing adoption and FIU approving 49 cryptocurrency exchanges in the fiscal year 2024-2025.

However, the current tax framework poses challenges, as losses from cryptocurrency transactions are not recognized, creating "friction rather than fairness," stated CoinSwitch co-founder Ashish Singhal.