India’s government saw a significant jump in income tax collected from cryptocurrency gains in the last financial year, signaling increased scrutiny on virtual digital assets.
Crypto Tax Collections Soar in FY24
The Indian government collected Rs 437.43 crore as income tax from gains on cryptocurrencies, officially termed Virtual Digital Assets (VDA), during the financial year 2023-24. This marks a substantial 63 percent increase compared to the previous year.
In 2022-23, the total collection stood at Rs 269.09 crore. These figures were confirmed by Minister of State for Finance, Pankaj Chaudhary, in a written response during the Lok Sabha’s Monsoon Session.
Understanding India’s Crypto Tax Framework
Despite the absence of specific laws regulating crypto in India, the government introduced a flat 30 percent tax on profits from VDA sales starting April 2022. It’s important to note that any losses incurred from these sales cannot be offset against other income or carried forward.
Additionally, a 1 percent Tax Deducted at Source (TDS) on cryptocurrency transactions came into effect from July 2022. This mechanism helps the government track crypto-related financial activities.
Government’s Strategy Against Evasion
The Finance Ministry is actively employing data analytics to identify and curb tax evasion related to VDA transactions. Tools like the Non-Filer Monitoring System (NMS), Project Insight, and internal databases of the Income Tax Department are being utilized to correlate VDA transaction data with reported income in tax returns.
While real-time matching with Virtual Asset Service Providers (VASPs) isn’t in place, the government analyzes TDS returns from these providers against taxpayer income tax returns. This helps pinpoint discrepancies in crypto reporting.
“NUDGE” Campaign in Action
The Central Board of Direct Taxes (CBDT) has launched a “NUDGE” campaign. This initiative involves sending communications to taxpayers who did not report VDA transactions in their income tax returns, despite TDS being deducted by VASPs for such activities. The campaign primarily targets discrepancies exceeding Rs 1 lakh.
The Challenge of Offshore Crypto Platforms
A recent report by the Esya Centre, a tech policy think-tank, highlights a significant challenge posed by offshore crypto trading platforms. Analysis from December 2023 to October 2024 revealed that Indians traded over Rs 2.63 lakh crore on these platforms.
This volume corresponds to approximately Rs 2,634 crore in uncollected TDS from these offshore entities. The think-tank estimates that the total uncollected TDS from offshore exchanges since July 2022 could exceed Rs 6,000 crore, with projections suggesting over Rs 17,000 crore might remain uncollected over the next five years.
- India’s crypto tax collection surged 63% to Rs 437 crore in FY24.
- A 30% tax on gains and 1% TDS apply to crypto transactions in India.
- The government uses data analytics and a “NUDGE” campaign to combat tax evasion.
- Significant uncollected TDS is attributed to Indian trading on offshore crypto platforms.
This increased tax collection and government scrutiny come amidst a dynamic period for the crypto sector, with recent reports of security breaches affecting major Indian exchanges like CoinDCX and WazirX.
