Income Tax Department investigating evasion from crypto assets
The Income Tax Department is investigating tax evasion and laundering of unaccounted income by high-risk persons through investments in virtual digital assets (VDAs) after its data analytics showed 'significant violations' of income tax rules by individuals in transactions involving crypto assets, sources said. The Department under the Central Board of Direct Taxes (CBDT) has identified such crypto transactions for verifications and has sent emails to defaulting persons to review their income tax returns (ITRs) to update any income that has not been properly declared on account of VDA transactions, they said.
'Data analytics has shown that a significant number of persons have violated provisions of Income-tax Act by not filing Schedule VDA of ITR and offering tax on the income earned at a lower rate or claiming cost indexation. ITRs filed by taxpayers are being verified with TDS returns filed by the Virtual Asset Service Providers (VASPs) popularly known as crypto exchanges and defaulters may be selected for further verification or scrutiny,' a source said.
India had introduced a 30 per cent flat income tax on gains made from cryptocurrencies from April 2022 after inserting Section 115BBH in the Income Tax Act, 1961 by the Finance Act, 2022. In July 2022, rules regarding 1 per cent tax deducted at source (TDS) on cryptocurrency came into effect.
The provision does not allow deduction of any expenses except cost of acquisition. Also, set-off of loss from VDA investment or trading is not allowed to be set off against any other income or for carry forward to subsequent years.
'Such entities and individuals which are engaged in Virtual Digital Asset (VDA) transactions and have failed to comply with the Income-tax Act, 1961 have been identified for verification…the CBDT has recently sent emails to thousands of defaulting persons to review their ITRs and update if any income on account of VDA transactions have not been properly declared,' a source said.
This is the third such 'NUDGE (Non-intrusive Usage of Data to Guide and Enable)' campaign by the CBDT in the last six months. Earlier campaigns were linked to declaration of foreign assets and income by taxpayers and withdrawal of bogus claims of deduction under Section 80GGC of the I-T Act.
Aanchal Magazine is Senior Assistant Editor with The Indian Express and reports on the macro economy and fiscal policy, with a special focus on economic science, labour trends, taxation and revenue metrics. With over 13 years of newsroom experience, she has also reported in detail on macroeconomic data such as trends and policy actions related to inflation, GDP growth and fiscal arithmetic. Interested in the history of her homeland, Kashmir, she likes to read about its culture and tradition in her spare time, along with trying to map the journeys of displacement from there.
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