Explained: CBDT targets unaccounted income invested in crypto
The Central Board of Direct Taxes (CBDT) is investigating tax evasion and the laundering of undeclared money by high-risk individuals who have invested in cryptocurrency or virtual digital assets (VDAs).
Why is the tax body doing this?
The main reason is to curb tax evasion and the laundering of unaccounted funds. Sources told PTI that the CBDT has identified some "high-risk persons" who are putting money in VDAs but have not complied with the Income Tax Act.
Data reviewed by the I-T department showed violations such as not filing the mandatory Schedule VDA in their income tax returns (ITRs), paying tax at lower rates, or wrongly claiming cost indexation. The tax body is matching ITRs filed by taxpayers with the TDS data submitted by crypto exchanges to identify taxpayers who have wrongly declared their crypto income. CBDT has recently embarked on a new approach termed NUDGE (Non-intrusive Usage of Data to Guide and Enable) Taxpayers, as part of the TRUST Taxpayers FIRST philosophy. Under this, the CBDT is reaching out to thousands of individuals, asking them to review their returns or update them if their transactions are not properly declared. This is to give people a chance to voluntarily comply before stringent actions are taken.
Beyond taxation, the government has shown concern about the likely misuse of cryptocurrencies for illegal activities such as terror financing and money laundering.
Existing framework
India has not formally recognised cryptocurrency as a legal tender, but the government introduced a taxation framework for VDAs in 2022. This includes: A flat 30% tax on income from VDA transfers.
A 1% tax deducted at source (TDS) on the sale consideration of VDAs.
No deduction of any expenses (except the cost of acquisition) is allowed.
Losses from VDA investments or trading cannot be set off against any other income or carried forward to subsequent years.
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