The government has once again clarified that crypto assets remain unregulated in India. However, this does not place crypto investors outside the tax or enforcement framework. In a written reply in Parliament, the Finance Ministry stated that while the government does not maintain official data on crypto holdings, tax evasion and illegal use of virtual digital assets are actively tracked and acted upon by multiple authorities.
The response underlines a consistent policy stance. Regulatory uncertainty does not translate into tax immunity or protection from enforcement action.
Government Clarifies Status of Crypto Assets
Replying to a question in the Lok Sabha, Minister of State for Finance Pankaj Chaudhary confirmed that crypto assets or virtual digital assets, including non-fungible tokens, are currently unregulated in India.
At the same time, the sector has been brought under the regulatory ambit of the Financial Intelligence Unit (FIU) India for the purposes of anti-money laundering and combating the financing of terrorism. This ensures monitoring of crypto transactions despite the absence of a dedicated regulatory law.
How Authorities Are Tracking Crypto Misuse
Crypto service providers are required to register with FIU-IND and comply with customer due diligence, record-keeping and reporting of suspicious transactions. FIU-IND analyses this information and shares actionable intelligence with enforcement agencies.
The Enforcement Directorate has already investigated multiple cases involving crypto assets under the Prevention of Money Laundering Act. According to the government, proceeds of crime worth about Rs 4,209.74 crore have been attached or seized so far. In these cases, 29 persons have been arrested, 24 prosecution complaints filed, and one accused declared a fugitive economic offender.
Income Tax Department Tightens Compliance Checks
On the tax front, the government has made it clear that crypto-related income cannot escape scrutiny. The Income Tax Department takes appropriate action wherever tax evasion involving virtual digital assets is detected, in accordance with the Income-tax Act, 1961.
The measures include nudging taxpayers, e-verification, reassessment, surveys and search and seizure operations where warranted. The Central Board of Direct Taxes has also launched a NUDGE campaign to encourage voluntary compliance.
As part of this initiative, communications have been sent to taxpayers who undertook crypto transactions but failed to disclose them in Schedule VDA of their income tax returns. Advanced data analytics, including Project Insight, are being used to match transaction data with return disclosures.
Benami and Foreign Crypto Assets Also Covered
The government has clarified that crypto assets are also subject to other stringent laws. Virtual digital assets held benami can attract action under the Benami Property Transactions Act. Undisclosed crypto assets held outside India may fall within the scope of the Black Money Act.
In parallel, the Reserve Bank of India has repeatedly cautioned users about the economic, financial, legal and security risks associated with dealing in crypto assets. Banks and financial institutions have been advised to maintain strict KYC, AML and CFT controls for crypto-linked transactions.
How Crypto Is Taxed in India
From a tax perspective, the position is already settled. Income from the transfer of virtual digital assets is taxed at a flat rate of 30 percent under Section 115BBH of the Income-tax Act, plus applicable surcharge and 4 percent health and education cess.
No deduction or allowance is permitted against such income. Losses arising from crypto transactions cannot be set off against any other income and cannot be carried forward.
For disclosure purposes, taxpayers must report crypto transactions on a transaction-wise basis in Schedule VDA of ITR-2 or ITR-3, as applicable. The special tax rate applies irrespective of the taxpayer’s income slab.
What This Means for Crypto Holders
The message from the government is clear and consistent. Crypto assets may be unregulated, but they are neither untaxed nor unchecked. Holding or trading in virtual digital assets without proper disclosure can attract tax scrutiny and enforcement action.
With increasing reliance on data analytics, inter-agency coordination and targeted compliance nudges, non-disclosure of crypto income is becoming increasingly difficult. For crypto holders, accurate reporting and timely compliance are now essential to avoid penalties, reassessment and potential prosecution.
Regulatory Gap and Compliance Pressure
Despite stronger tax enforcement and AML oversight, the absence of a comprehensive regulatory framework for crypto assets continues to create uncertainty. Reliance on surveillance and post-facto enforcement, without parallel consumer protection or operational regulation, increases compliance pressure for genuine participants. Overlap across tax, AML and foreign asset laws can also lead to interpretational challenges. Until a clear regulatory regime emerges, crypto holders remain exposed to policy uncertainty even as compliance expectations continue to rise.
Source: Adapted from FinancialExpress