The Indian government is stepping up its initiatives to address tax evasion in the cryptocurrency domain by utilizing advanced technologies and regulatory strategies. By implementing tools like artificial intelligence (AI), machine learning, and digital forensics, tax authorities intend to pinpoint unusual transaction behaviors and enhance adherence to the taxation rules surrounding virtual digital assets (VDAs). This approach, which includes targeted training sessions for tax officials, highlights a strategic effort to eliminate loopholes and bolster revenue collection from crypto-related income.
### Strengthening Tax Enforcement Capacities
The Central Board of Direct Taxes (CBDT) has made it a priority to enhance the capabilities of tax enforcement agencies by offering specialized training for officers, including blockchain forensics. Collaborations with institutions such as the National Forensic Science University in Goa have been established to ensure that officials are well-versed in managing digital evidence and analyzing blockchain data, which is crucial for effectively monitoring VDA transactions. Despite these advancements, there are still challenges in reconciling crypto transaction data reported in tax returns with that of Virtual Asset Service Providers (VASPs). Currently, discrepancies are identified by comparing Tax Deducted at Source (TDS) returns from VASPs with individual tax declarations.
### Campaigns to Promote Compliance
To tackle issues of underreporting, the CBDT has initiated the NUDGE campaign aimed at taxpayers who have not reported VDA transactions surpassing 1 lakh rupees. Individuals falling into this category are being contacted to encourage them to meet their tax responsibilities. Furthermore, legislative measures like Section 115BBH for the 2022-23 tax year impose a flat 30% income tax on profits derived from cryptocurrencies, allowing no deductions aside from acquisition costs. A 1% TDS is also applicable on specific transactions. In the fiscal year 2022-23, these regulations resulted in tax collections of 437 crore rupees from VDA-related incomes, indicating a substantial rise compared to earlier periods.
### The Role of Technology in Compliance
Technology plays a crucial role in these enforcement efforts. AI and machine learning applications are actively used to identify irregularities in transaction patterns, while data analytics tools such as the Non-Filer Monitoring System (NMS) and Project Insight compile data to detect inconsistencies. These technologies facilitate cross-referencing information from various databases, thereby enhancing the precision of compliance audits. However, the lack of real-time integration of VASP data continues to reveal weaknesses in the system, especially concerning cross-border transactions.
### Global Exchanges Adapting to Local Regulations
The government’s initiatives have also led to international cryptocurrency exchanges adjusting to Indian regulations. For example, Bybit, a prominent global exchange, has announced an 18% Goods and Services Tax (GST) on services provided to Indian users, effective July 2025. This encompasses trading fees, staking rewards, and withdrawals, signaling a broader trend toward adhering to local tax requirements.
### Conclusion: A New Era of Tax Compliance
The blend of technological advancements, stringent regulatory measures, and international collaboration marks a significant transition in India’s strategy towards crypto taxation. While challenges such as enhancing real-time data matching and navigating cross-border complexities remain, the government’s proactive efforts reflect a strong commitment to fostering transparency and accountability in the digital asset sector. For both investors and exchanges, it is evident that complying with tax regulations in crypto transactions is now imperative.
