India’s tax authorities have intensified scrutiny of cryptocurrency transactions, using advanced data analytics and AI-driven systems to detect unreported virtual digital asset income and push taxpayers towards stricter compliance.
In one of the most extensive technology-driven enforcement exercises this financial year, the Central Board of Direct Taxes (CBDT) has detected nearly ₹888.82 crore in undisclosed income linked to virtual digital assets, including cryptocurrencies and other blockchain-based holdings. The findings have led the Income Tax Department to issue 44,507 notices and advisory communications to taxpayers who failed to disclose such transactions in their income tax returns.
The action is part of the CBDT’s NUDGE programme—Non-Intrusive Usage of Data to Guide and Enable—which aims to use data analytics to flag inconsistencies and encourage voluntary corrections before stricter enforcement steps are taken.
AI-led surveillance triggers alerts
Tax officials said the discrepancies were identified after extensive cross-verification of blockchain transaction records, data submitted by crypto exchanges, tax deducted at source (TDS) filings, and income declarations made by taxpayers. This information was analysed through Project Insight, the department’s flagship AI-based monitoring platform.
During the ongoing financial year, the department plans to continue sending targeted emails and SMS alerts to individuals whose crypto trading activity does not align with their reported income. Authorities noted several cases where high-value crypto trades were carried out through regulated exchanges but were omitted from tax filings.
Mandatory reporting tightens the net
Under the Prevention of Money Laundering Act (PMLA), all Virtual Asset Service Providers are required to submit regular and suspicious transaction reports to the Financial Intelligence Unit–India. These reports are shared with agencies such as the Income Tax Department and the Enforcement Directorate when irregular patterns emerge.
In Parliament, the Ministry of Finance confirmed that virtual asset data from multiple sources—including VASP filings and income tax records—is being systematically matched. Any mismatch is automatically flagged for follow-up action, significantly reducing the scope for concealment.
Enforcement agencies step up action
The government also disclosed that the Enforcement Directorate has attached, seized or frozen crypto-linked assets worth ₹4,189.89 crore in multiple investigations. So far, the agency has arrested 29 individuals, filed 22 prosecution complaints and declared one accused a fugitive economic offender, highlighting the seriousness with which crypto-related financial crimes are being pursued.
Tax experts say many investors either misunderstand or ignore India’s crypto taxation rules, which mandate a 30 percent tax on virtual asset income, a one percent TDS on transactions, and compulsory disclosure in tax returns. Officials stress that the belief that crypto transactions are untraceable is increasingly outdated, given the growing sophistication of analytics tools.
With coordinated action by the CBDT, FIU and ED, the government has signalled a firm stance on crypto compliance, combining nudges for voluntary disclosure with zero tolerance for deliberate non-reporting.
See What’s Next in Tech With the Fast Forward Newsletter
Tweets From @varindiamag
Nothing to see here - yet
When they Tweet, their Tweets will show up here.
