India's Tax Department Echoes Reserve Bank's Concerns on Crypto
India’s income tax authorities, alongside the Reserve Bank of India, have raised concerns about virtual digital assets due to challenges in tracking and taxing crypto transactions. Key obstacles include crypto’s borderless, pseudonymous nature, and transactions outside regulated banking channels, leading to enforcement gaps and jurisdictional overlap in cross-border activity. Authorities highlighted issues such as misuse of customer funds, extreme leverage, insider trading, and crypto-laundering—prompting increased scrutiny of both centralised and offshore exchanges. Despite a flat 30% tax and 1% TDS on crypto trades, a lack of a clear regulatory framework persists. The government is favoring an RBI-backed digital currency and views heavy taxation as a deterrent against unregulated crypto. Enforcement action includes retrospective audits and significant penalties for undisclosed gains. Critics warn that continued policy resistance without clear regulation could stifle innovation and push crypto businesses offshore, ultimately undermining India’s ability to influence or regulate the sector. The upcoming Union Budget may address these issues, but institutional discomfort with private digital assets continues to shape the government’s cautious stance.
