Authorities in India Intensify Pursuit of Crypto Tax Evaders
Crypto Crackdown in India: A New Era of Taxation and AML Enforcement
The Indian government has been on a mission lately, targeting individuals and businesses hiding their crypto earnings. This clampdown, triggered by the realization that most crypto gains were going unreported, is in full swing with the Central Board of Direct Taxes (CBDT) delving into tax evasions and money laundering involving digital assets.
According to Bloomberg, these digital assets' profits are now taxed at a flat rate of 30% under Section 115BBH of the Income Tax Act. This hefty taxation hasn't deterred tax evaders though, as many have been evading this levy.
The CBDT is employing data analysis to identify suspicious crypto transactions and has been sending out hundreds of notices to potentially defaulting persons. The latest enforcement push is a direct result of the Prevention of Money Laundering Act (PMLA), which was updated in March 2023 to include crypto transactions.
Dealers and exchanges must now perform Know Your Customer (KYC) checks and keep records of user activity and transactions, similar to banks, thanks to the PMLA updates. As Shashank Agarwal, an Advocate at Delhi High Court, stated, this will ensure closer government oversight of the crypto trading scene.
Clear tax rules for Virtual Digital Asset (VDA) transactions were introduced in the Union Budget 2022. Apart from the 30% tax on profits, there's also a 1% Tax Deducted at Source (TDS) on every crypto transaction under Section 194S of the Income Tax Act.
More notices might be issued shortly, and legal action could follow for those who continue to ignore the rules.
If you're interested in understanding the nuances of India's aggressive crypto taxation and anti-money laundering enforcement, check out "India's Crypto Dilemma: Can growing Institutional Adoption Enable Regulatory Clarity?"
Key Insights
- Crypto Transactions under Tight Scrutiny: India's tax department is using data analysis and cross-referencing tools to identify individuals and businesses involved in tax evasion and suspicious crypto transactions.
- Flat Tax Rate and Reporting Requirements: Crypto gains are taxed at 30% under Section 115BBH of the Income Tax Act, with reporting requirements using ITR-2 (for capital gains) or ITR-3 (for business income).
- Unreported Gains Penalty: Unreported crypto gains identified during tax investigations are considered "undisclosed income" and taxed at 60%.
- Money Laundering Focus: While the focus is on income reporting and tax compliance, unreported or suspicious transactions may still be investigated for money laundering under the PMLA.
- Regulatory Clarity and Institutional Adoption: The evolving regulatory landscape in India suggests that growing institutional adoption may aid in achieving regulatory clarity in the crypto sector.
Bitcoin and Ethereum transactions, along with other cryptocurrencies, are now under tight scrutiny due to the Indian government's focus on identifying individuals and businesses involved in tax evasion and suspicious crypto transactions. As per the Prevention of Money Laundering Act (PMLA), updated in March 2023, dealers and exchanges must perform Know Your Customer (KYC) checks, keep records of user activity, and follow the 1% Tax Deducted at Source (TDS) on every crypto transaction under Section 194S of the Income Tax Act. Failure to comply with these regulations can lead to penalties for undisclosed income, taxed at 60%.
