Crypto Under the Scanner: Income Tax Department Cracks Down on Undisclosed VDA Income

As per news reports, individuals and entities dealing in Virtual Digital Assets (VDAs) who have not followed the tax rules are now under investigation by the Income Tax department. The CBDT has emailed thousands of taxpayers, urging them to review their income tax returns (ITRs) if they haven't properly declared their crypto earnings. 

How is Crypto Income Taxed in India?  

As per Section 115BBH of the Income-tax Act, introduced in 2022, any income gained from selling VDAs attracts a flat 30% tax. This tax is levied without allowing deductions for expenses, except for the initial cost of buying the asset. Furthermore, any losses from VDA investments or trading cannot be used to offset other income, nor can they be carried forward to future years to reduce taxes. 

How is the Income Tax Department Tracking Undisclosed Crypto Income? 

The Income Tax Department is leveraging data analytics to identify non-compliant taxpayers. News reports suggest that a lot of crypto traders have not filed out the "Schedule VDA" in their ITRs. The Income Tax department is cross-referencing such ITRs with information provided by crypto exchanges (Virtual Asset Service Providers or VASPs), and those found to be defaulting may face an income tax notice. 

Read more: ITR Filing 2025: Your Simple Guide to Responding to Income Tax Notices. 

A "NUDGE" Towards Compliance 

This crackdown is part of CBDT's broader "NUDGE" initiative, which stands for "Non-intrusive Usage of Data to Guide and Enable" taxpayers. This approach aligns with their "TRUST Taxpayers FIRST" philosophy. This marks the third "NUDGE" campaign in the last six months, with previous campaigns focusing on declaring foreign assets and withdrawing false claims for certain tax deductions. By sending these emails, the CBDT aims to encourage voluntary compliance before resorting to more stringent measures. 

Conclusion 

With the Income Tax Department's increased focus on undisclosed VDA income, all cryptocurrency traders need to sort out their tax affairs. By understanding and adhering to the specific tax rules for VDAs, you can avoid penalties from the Income Tax department. The "NUDGE" is a clear signal: it's time to get your crypto tax house in order. 
 
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