New Delhi: In one of the largest data-led tax enforcement actions of the current financial year, the Central Board of Direct Taxes (CBDT) has identified ₹888.82 crore worth of undisclosed income held in the form of Virtual Digital Assets (VDAs) primarily cryptocurrency and other blockchain-based assets.
Following the red-flag alerts, the Income Tax Department has issued 44,507 notices and advisory communications to taxpayers who failed to report such transactions in their Income Tax Returns (ITRs). According to information shared by the Finance Ministry, the action forms part of CBDT’s technology-driven NUDGE programme (Non-Intrusive Usage of Data to Guide & Enable), designed to alert taxpayers about inconsistencies in their financial profiles and encourage voluntary compliance.
Heightened surveillance: I-T to send targeted emails and SMS alerts
The I-T Department said it will send emails and SMS alerts throughout FY 2024–25 to taxpayers whose VDA transactions do not match their declared income. Officials stated that several instances surfaced where individuals engaged in high-value crypto trading through exchanges but omitted the information from their ITR filings.
The discrepancy came to light after cross-matching blockchain transaction data, exchange submissions, TDS statements, and analytics generated through Project Insight—the department’s flagship AI-driven monitoring system.
Mandatory Reporting by VASPs, Strict PMLA Compliance Rules Enforced
Under the Prevention of Money Laundering Act (PMLA), 2002), all Virtual Asset Service Providers (VASPs) are legally required to file specified and suspicious transaction reports with the Financial Intelligence Unit–India (FIU-IND).
These reports are analysed and forwarded to investigative agencies including the Enforcement Directorate (ED) and Income Tax authorities when anomalies or suspicious patterns are detected.
Minister’s statement in Parliament: ‘Data analytics will catch every mismatch’
In a written reply to the Lok Sabha, Minister of State for Finance Pankaj Chaudhary stated that the Income Tax Department is using Project Insight, internal databases, VASP-filed TDS returns, and taxpayer ITRs to identify mismatches. He emphasised:
“All VDA transaction data is being cross-verified with ITR disclosures. Any inconsistency is automatically flagged for further action.”
Tax experts note that recent upgrades to Project Insight’s AI capabilities have strengthened the department’s ability to trace crypto gains, reducing the scope for evasion even through decentralised platforms.
ED freezes/attaches ₹4,189.89 crore in crypto-linked proceeds
The government also informed Parliament that the Enforcement Directorate, while probing several crypto-linked cases under PMLA, has attached, seized, or frozen assets worth ₹4,189.89 crore. So far, the ED has: Arrested 29 individuals, Filed 22 prosecution complaints, Declared one accused a Fugitive Economic Offender. Officials say these numbers underline the Centre’s zero-tolerance strategy toward financial crimes routed through virtual assets.
Why the surge in crypto-related tax leakages?
Market observers point out that India has seen sharp volatility in crypto trading volumes over the past two years. Many retail investors either lack clarity about tax norms or intentionally under-report crypto gains, despite clear provisions mandating: 30% tax on VDA income, 1% TDS on transactions, Compulsory disclosure in ITR (Schedule VDA).
Authorities note that several investors mistakenly believe blockchain transactions are untraceable an assumption that modern analytics tools have proven false.
Government signals firm stance no flexibility on crypto compliance
The recent actions by CBDT and ED make it evident that the government views the crypto ecosystem as a high-risk financial domain requiring strict regulatory oversight. While the NUDGE framework encourages voluntary correction, the enforcement side led by FIU, ED and AI-driven tax systems indicates zero tolerance for non-disclosure or suspicious crypto activity.
Experts predict that upcoming reforms may include:
- Full KYC compliance across all platform
- Centralised reporting of VDA transactions
- More aggressive AI-based monitoring and real-time flagging
