New Delhi: India’s cryptocurrency and virtual digital asset (VDA) market has expanded rapidly, making transparent income reporting from crypto derivatives an important challenge for the country’s tax administration. Digital law expert Gowree Gokhale argues that the focus should be on ensuring accurate income disclosures and effective enforcement of existing regulations rather than opening a fresh debate over taxation. Better use of artificial intelligence (AI) and financial transaction data could help tax authorities compare declared income with actual trading activity more efficiently.
India’s virtual digital asset sector has grown significantly over the past decade. According to reported estimates, the country now has approximately 120 million VDA users, compared with fewer than five million in 2017. This represents an increase of nearly 24 times. As the market expands, the need to monitor cryptocurrency transactions, improve income reporting and ensure tax compliance has also increased.
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₹1,096 Crore Collected as TDS on Crypto Transactions
According to data shared by the Ministry of Finance in Parliament, approximately ₹1,096 crore was collected as tax deducted at source (TDS) at a rate of 1% on consideration paid for the transfer of virtual digital assets during the financial years 2022-23 to 2024-25.
The figure highlights the scale of cryptocurrency-related transactions and the importance of tax monitoring in the sector.
However, TDS collections alone do not establish whether traders have declared their entire taxable income. Accurately assessing income generated through crypto derivatives requires comparing available transaction data with the information disclosed in tax returns.
Such comparisons could help authorities identify potential discrepancies between reported income and actual trading activity, although further examination would be necessary to establish whether any discrepancy represents a tax violation.
AI Could Help Tax Authorities Analyse Trading Activity
According to digital law expert Gowree Gokhale, artificial intelligence can analyse large volumes of financial data and help identify patterns that may otherwise be difficult to detect manually.
By comparing available trading records with income declared by taxpayers, authorities could identify potential inconsistencies more efficiently.
The process would involve checking whether income reported in tax returns corresponds with available information about trading activity. Where discrepancies emerge, the underlying transactions and supporting documents could be examined.
However, an inconsistency identified by an automated system would not, by itself, constitute proof of tax evasion. Further investigation based on the relevant facts and applicable tax laws would still be necessary.
AI-based analysis could therefore serve as a tool to improve scrutiny and prioritise cases requiring closer examination rather than replace established verification procedures.
FIU Registration Could Strengthen Monitoring Capabilities
Under the Prevention of Money Laundering Act (PMLA), relevant cryptocurrency exchanges are required to register with the Financial Intelligence Unit-India (FIU-IND) and comply with applicable reporting and record-keeping obligations.
Combining this regulatory framework with AI-driven data analysis could help the Central Board of Direct Taxes (CBDT) cross-check available information and identify potential gaps between declared income and actual trading activity.
The effectiveness of such an approach would depend on the quality of information received from exchanges, the scope of available transaction records and the arrangements for sharing relevant data across regulatory systems.
Better coordination between financial intelligence and tax authorities could potentially improve the identification of transactions requiring further scrutiny, subject to applicable legal and data-access requirements.
Accurate Reporting Remains Important for Crypto Traders
For investors and traders dealing in crypto derivatives, maintaining accurate financial records and reporting income correctly remain important aspects of tax compliance.
Keeping transaction records, calculating profits and losses appropriately and complying with applicable tax rules can help reduce the risk of disputes with tax authorities.
The growing scale of India’s VDA market makes reliable reporting systems increasingly important. As trading activity becomes more complex, data analysis and improved regulatory coordination could help authorities assess compliance more effectively.
The central argument is that strengthening transparency, improving income disclosures and making better use of available transaction data could help address compliance challenges in the cryptocurrency sector. Rather than focusing exclusively on whether new taxes are needed, greater attention to the effective implementation of existing rules and accurate reporting of taxable income could provide a practical way forward.
About the author — Suvedita Nath is a science student with a growing interest in cybercrime and digital safety. She writes on online activity, cyber threats, and technology-driven risks. Her work focuses on clarity, accuracy, and public awareness.
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