India’s Crypto Tax Enforcement

India’s tax authorities are enhancing their efforts to combat crypto tax evasion by leveraging artificial intelligence and international collaboration, as revealed by the Chairman of the Central Board of Direct Taxes (CBDT), Ravi Agrawal, in an interview with Economic Times.

The CBDT now has access to over 6.5 billion domestic digital transactions and is actively involved in the Crypto-Asset Reporting Framework (CARF). This global standard, established by the OECD, mandates crypto platforms to collect and share user transaction data with tax authorities, facilitating automatic exchange of tax information across borders to counteract tax evasion.

Saravanan Pandian, CEO and founder of KoinBX, stated, “The goal is to place crypto transactions under international tax agreements to align nations.” He also noted the potential impact on exchanges will depend on forthcoming government regulations.

India’s Income Tax Department is utilizing AI to match Tax Deducted at Source (TDS) data from crypto exchanges with income tax returns (ITRs) filed by individuals. Notices will be issued for discrepancies exceeding $1,200 (₹1 lakh).

According to Agarwal, digital access powers are limited to specific operations and do not violate taxpayer privacy. He emphasized that examining digital evidence is crucial as financial activities increasingly move online.

CA Sonu Jain from 9Point Capital remarked that India is moving towards a future where visibility of crypto wallets and automatic data exchanges are commonplace, addressing the anonymity issues in the sector. Jain also noted that access to taxpayer crypto accounts is allowed only during specific operations, striking a balance between enforcement and privacy.

India’s Crypto Tax Regime Overhaul

This crackdown comes in the wake of India’s 2022 overhaul of its crypto tax regime, imposing a flat 30% tax on profits and a 1% TDS on transactions above a certain threshold. Since the tax rate’s introduction in the 2022-23 fiscal year, the government has collected $818 million (₹700 crore), including $323 million (₹269.09 crore) in the first year and $525 million (₹437.43 crore) in 2023-24.

Minister of State for Finance, Pankaj Chaudhary, mentioned in a Lok Sabha reply that the department employs data analytics to trace tax evasion related to Virtual Digital Asset (VDA) transactions. However, he confirmed that real-time matching of VDA transactions in ITRs with data submitted by Virtual Asset Service Providers (VASPs) is not yet being conducted.