Crypto Investments Under the Tax Scanner: CBDT Launches Major Probe
The Central Board of Direct Taxes (CBDT) is cracking down on potential tax evasion and money laundering through Virtual Digital Assets (VDAs), including cryptocurrencies. This isn’t just a warning; it’s a full-blown probe, with high-risk VDA investors now under intense scrutiny.
The tax authority has identified widespread non-compliance among those dealing in digital assets. Many have failed to report their gains in the mandatory Schedule VDA of their income tax returns (ITR) or have paid lower taxes by wrongly claiming benefits like cost indexation.
What’s Triggering the Scrutiny?
The CBDT is leveraging sophisticated data analytics, matching ITR filings with TDS (Tax Deducted at Source) data provided by Virtual Asset Service Providers (VASPs), commonly known as crypto exchanges. Any discrepancies are immediately flagging individuals for further investigation.
The Law is Clear:
Under Section 115BBH of the Income Tax Act, introduced in the Finance Act, 2022, income from VDA transfers is taxed at a flat 30%, plus applicable surcharge and cess. Crucially, no expenses (except the cost of acquisition) can be deducted, and you can’t set off or carry forward losses from VDA transactions.
NUDGE Towards Compliance:
This initiative is part of the CBDT’s “NUDGE” framework—”Non-intrusive Usage of Data to Guide and Enable taxpayers.” It’s a proactive effort to encourage voluntary compliance before resorting to stricter enforcement. In recent weeks, thousands of identified high-risk defaulters have received emails urging them to review and update their ITRs.
This is the third “NUDGE” campaign in six months, following similar pushes on foreign asset disclosures and ineligible deductions. The message is clear: if you’ve invested in crypto, ensure your tax filings are accurate and compliant. Ignoring these warnings could lead to further verification or scrutiny under the law.