In India, avoiding taxes on bitcoin, cryptocurrencies, and other virtual digital assets (VDAs) is becoming increasingly difficult. The Income Tax Department is intensifying its efforts to monitor transactions related to VDAs made by individuals through the use of artificial intelligence (AI), machine learning, and other data analytics tools. According to the government’s response in Parliament, the government has collected ₹437 crore in taxes for the fiscal year (FY) 2022-23 from VDA-related income. The government implemented income tax rules for crypto and other VDAs starting from FY 2022-23, leading to the collection of ₹269.09 crore in taxes from VDA income during this period.
Members of Parliament (MPs) raised several questions regarding tax collection, potential revenue losses due to under-reporting and mis-reporting of VDA income, and the technological tools employed to monitor crypto activity. ET Wealth Online provides a breakdown of the government’s responses concerning the use of data tools, centralized systems for matching crypto tax data, and ongoing training programs for tax officers.
Questions on Income Tax Collection from VDAs and Cryptocurrency
Parliamentarians Lavu Sri Krishna Devarayalu and G M Harish Balayogi, members of Lok Sabha, posed several questions to which the government provided the following responses:
(a) What is the total revenue collected from income tax on VDA/cryptocurrency-related income during the last three years, year-wise?
The government replied that the tax on income from the transfer of VDAs, under section 115BBH of the Income Tax Act, 1961, was introduced from FY 2022-23. The collection of tax on income from VDAs for the last three years is as follows:
| YearRevenue Collected (₹ Crore) | |
|---|---|
| FY 2022-23 | 269.09 |
| FY 2021-22 | N/A |
| FY 2020-21 | N/A |
(b) Have any estimates been made by the government regarding the projected revenue loss due to under-reporting/mis-reporting of income from VDA/cryptocurrency transactions?
The government responded that no such estimates have been made.
(c) Is the government using AI/ML/data analytics tools to identify tax evasion in VDA transactions? If so, what are the details?
The government confirmed that data analytics tools are utilized to trace and detect tax evasion from VDA-related transactions. The analysis includes the use of the Non-Filer Monitoring System (NMS), project insight, and internal databases of the Income Tax Department to correlate available information on VDA transactions with the transactions disclosed in taxpayers’ returns.
(d) Has a centralized system been established by the government for real-time matching of VDA-related Income Tax Return (ITR) filings with TDS returns filed by Virtual Asset Service Providers (VASPs)?
The government stated that real-time matching of VDA-related transactions filed in income tax returns with information filed by VASPs is not being carried out. However, TDS returns filed by VASPs and income tax returns filed by taxpayers are analyzed to identify discrepancies in reported VDA transactions. The Central Board of Direct Taxes has initiated the NUDGE (Non-Intrusive Use of Data to Guide and Enable) campaign to identify such discrepancies for further action. Suitable communications have been issued to all taxpayers who did not report VDA-related transactions in their returns, especially where tax was deducted at source for transactions exceeding ₹1 lakh.
(e) Has the government undertaken any capacity-building initiatives to equip tax officials for effective compliance monitoring and investigation in the VDA/cryptocurrency ecosystem?
The government affirmed several capacity-building initiatives to equip officers for effective compliance monitoring and investigation of VDA-related transactions. Training programs, specialized workshops, “Chintan Shivirs,” and hands-on workshops are regularly conducted by various training institutes under the Income Tax Department. Locally, field offices conduct training sessions and webinars on digital forensics, blockchain analysis, legal frameworks, and handling digital evidence. Officers also receive short-term training on digital forensics in partnership with the National Forensic Science University (NFSU) in Goa, enabling them to identify and trace VDA-related transactions from data collected during intrusive actions.
Penalty for Not Disclosing Crypto Earnings
According to a report in The Economic Times, the Income Tax Department has sent bulk notices to taxpayers who have either not paid the correct income tax amount or failed to report income from cryptocurrency in their tax returns.
If an individual taxpayer fails to report crypto transactions, they may be liable to pay a penalty under Section 270A of the Income Tax Act, 1961. Under this section, a taxpayer is liable to pay a sum equal to fifty percent of the tax payable on under-reported income. If the under-reported income results from any misreporting, the liability increases to two hundred percent of the tax payable on the under-reported income.
With these stringent measures and increasing scrutiny, taxpayers involved with VDAs must ensure compliance to avoid substantial penalties.
