India cracks down on ‘crypto’ tax evaders, seizes $327K

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Profits earned through digital asset trading are now firmly on the radar of Indian tax authorities. With enhanced data-sharing mechanisms in place between digital asset exchanges and the government, tax officials are actively monitoring and cross-referencing digital asset transactions in real-time.

India’s Income Tax Department has reportedly contacted thousands of individuals who engaged in digital asset-related activities but failed to include this income in their tax filings for the financial years 2022–23 and 2023–24. These individuals have been sent official notices urging them to update their Income Tax Returns (ITRs) and rectify any omissions or inaccuracies.

Authorities, including the Central Board of Direct Taxes (CBDT), are reportedly concerned about potential tax evasion and illicit financial flows. They have flagged a segment of “high-risk” investors suspected of channeling undisclosed income into virtual digital assets (VDAs).

The crackdown stems from discrepancies found between information reported by taxpayers and the data obtained from digital asset platforms and Tax Deducted at Source (TDS) returns. In several cases, the reported figures did not align with actual transaction volumes and values, raising red flags over underreporting or non-disclosure of income generated from digital asset trading.

Taxpayers receiving these communications have been encouraged to make amends through the updated return filing mechanism, which allows individuals to correct previously filed returns within a stipulated time frame.

“We are witnessing the early stages of a sweeping regulatory architecture marked by uncompromising know-your-customer/anti-money laundering stringency, forensic blockchain intelligence integration, and the institutionalisation of ex-ante disclosure obligations,” Raj Kapoor, founder and CEO of India Blockchain Alliance, told CoinGeek.

“I would not call this an indictment of crypto as an asset class, but rather an imperative to subject it to the rigours of regulatory orthodoxy. I see now, the future of crypto in India not merely regulated but irrevocably redefined,” Kapoor added.

India imposes one of the harshest taxation on digital asset trading—30% flat tax on all digital currency income with no provision to offset losses and a 1% tax deducted at source (TDS) on all transactions above Rs 10,000 ($116). This may likely lead to a loss of about $1.2 trillion in trade volume on domestic exchanges, according to a study from Esya Centre, an Indian policy think tank.

Seychelles-headquartered OKX exchange shut down its India operations in 2024, citing regulatory hurdles. Domestic exchanges, however, have been increasingly complying with new regulatory demands.

At the same time, exchanges have been requesting the government to establish a level playing field for virtual digital assets (VDAs). The requests include reducing TDS from 1% to 0.01%, allowing offsetting and carrying forward losses, and treating income from digital assets at par with other capital assets. But the requests have so far fallen on deaf ears. While the local economy is looking to regulate the digital assets space, Finance Minister Nirmala Sitharaman said in March 2024 that ‘cryptocurrencies’ cannot be a legal currency in India.

“Many Indian users, often unknowingly, engage with non-compliant or offshore crypto platforms…Regardless of how you interact with crypto—whether through global exchanges, P2P wallets, or airdrops, it is mandatory to report all VDA income,” Sumit Gupta, co-founder of CoinDCX, India’s first digital currency unicorn, wrote in a LinkedIn post.

CBI busts cyber fraud, seizes ‘crypto’

In other news, the Central Bureau of Investigation (CBI) has dismantled a cross-border cyber fraud ring, arresting an Indian resident and confiscating ‘cryptocurrency’ valued at more than $327,000. The operation, which targeted individuals in the United States and Canada, marks a significant step in the agency’s crackdown on digital crime with international reach.

“Acting on actionable intelligence developed during the investigation, CBI conducted these searches and uncovered incriminating evidence busting the operation of a group engaged in transnational cyber fraud,” the CBI said in a statement.

“The seized materials include tools for making international calls with masked caller identity, a lead-generation mechanism based on social engineering tactics, voice recordings, and other components of the cybercrime ecosystem,” it added.

The suspect, Rahul Arora, was taken into custody during a series of coordinated raids at three separate locations across India. During the investigation, authorities discovered advanced software and equipment allegedly used to pose as government officials and technical support personnel—tactics employed to deceive foreign nationals and extract money under false pretenses.

The CBI said that it has developed in-house capabilities for handling and seizure of VDAs as part of its technology-driven approach to combating cybercrime. The agency said it has also put in place necessary systems for the management of such assets as per legal provisions. As a result, the CBI said it successfully detected and seized VDAs in its various search operations.

Arora’s arrest highlights the growing sophistication and global scope of the CBI’s cybercrime investigations. It also reflects the agency’s increasing focus on crimes involving digital assets, bolstered by experience gained from major cases such as the high-profile GainBitcoin Ponzi scheme.

In February, the CBI executed widespread raids at 60 locations in connection with the GainBitcoin investigation, a scam involving over $800 million. That operation resulted in the seizure of cryptocurrencies worth approximately $2.9 million, further underscoring the scale of financial crimes being committed through digital platforms.

“The message for the Indian crypto ecosystem is clear: the era of regulatory leniency is over, and this isn’t necessarily bad. In fact, clarity, even if stringent, is better than confusion. It allows serious players to innovate, investors to enter with confidence, and the state to build a compliant digital finance architecture,” Kapoor of India Blockchain Alliance told CoinGeek.

“Failure to proactively adopt industry standards or engage constructively with regulators may result in more exchange exits from India, more pertinently a chilling effect on Web3 startups, who may then look to domicile overseas,” Kapoor added.

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