In new campaign, Income Tax dept probes tax evasion via virtual digital assets
Cryptocurrencies are not regulated in India and the government is working on a discussion paper with options ranging from regulation to a complete ban
NEW DELHI: The Income Tax department is investigating tax evasion and money laundering of unaccounted income by high-risk persons through investments in virtual digital assets (VDAs), including cryptocurrencies, people familiar with the matter said on Friday.
“Such entities and individuals which are engaged in VDA transactions and have failed to comply with the Income Tax Act, 1961 have been identified for verification,” a government official who asked not to be named said.
In India, crypto-assets are not recognised as legal tender.
Cryptocurrencies are not regulated in the country and the government is in the process of bringing out a discussion paper on this subject with options ranging from regulation to a complete ban, a second government official said.
“Although income from VDAs such as cryptocurrencies are taxable, it must not be construed as the government’s regulatory approval to them,” he said.
The 2022-23 Union Budget levied a 30% tax on the income from virtual digital assets, including cryptocurrencies and subjected such transactions to 1% tax deducted at source (TDS) to help track their use.
The official said while it was true that VDA service providers were made reporting entities from March 7, 2023, the move was aimed at tracking the misuse of VDAs and cryptocurrencies for illegal activities such as terror financing under the Prevention of Money Laundering Act (PMLA).
It does not, however, accord any status of legal tender to private VDAs, he said.
“Section 115BBH of Income Tax Act, 1961 inserted by the Finance Act, 2022 prescribes a flat tax rate of 30% (plus applicable surcharge and cess) on income from VDA transfer. The provision does not allow deduction of any expenses except the cost of acquisition,” the first official said.
The Central Board of Direct Taxes (CBDT) is scanning suspicious transactions and taking action against illegal activities, he said. “Any set-off of loss from VDA investment or trading is not allowed to be set off against any other income or for carry forward to subsequent years,” he said.
“Data analytics has shown that a significant number of persons have violated provisions of Income Tax Act by not filing Schedule VDA of ITR [Income Tax Returns] and offering tax on the income earned at lower rate or claiming cost indexation,” he said.
ITRs filed by taxpayers are being verified with TDS returns filed by the Virtual Asset Service Providers (VASPs), popularly known as crypto exchanges, and defaulters may be selected for further verification/ scrutiny.
The officials said CBDT recently sent emails to thousands of defaulting persons to review their ITR and update if any income on account of VDA transactions has not been properly declared.
CBDT recently embarked on a new approach termed as Nudge (Non-intrusive Usage of Data to Guide and Enable) Taxpayers, as a part of Trust Taxpayers First philosophy.
This campaign around VDAs is the third Nudge launched by CBDT over the last six months. Previous Nudge campaigns focused on the declaration of foreign assets and income by taxpayers, and the withdrawal of bogus claims of deduction under section 80GGC relating to donations to political parties, they added.
