In a written response to the Lok Sabha, the Ministry of Finance confirmed that India has not yet enacted specific regulations governing cryptocurrencies or Virtual Digital Assets (VDAs).
Crypto-assets, the government noted, are “borderless” and therefore difficult to govern using domestic tools alone. Any effective regulation, it argued, must emerge from international partnerships capable of preventing systematic arbitrage across global exchanges.
While India has implemented taxation measures—including a 1% TDS on VDA transfers and a 30% tax on crypto profits—the wider ecosystem continues to operate without a dedicated legislative framework.
The admission comes even as India’s crypto trade volumes have crossed the equivalent of USD 15 billion, according to industry estimates frequently cited by lawmakers. For now, the government does not collect activity-level data from Indian users or exchanges.
Tax Evasion, Benami Transactions, and Seizures: A Closer Look at Enforcement
Despite the absence of formal regulation, a mosaic of enforcement mechanisms is already in motion.
The Central Board of Direct Taxes (CBDT) disclosed that repeated surveillance and search operations uncovered ₹888.82 crore in unreported VDA-linked income. Under its NUDGE campaign, CBDT issued 44,057 notices to taxpayers who traded crypto but failed to declare it in their Income Tax Returns.
Data-analytics engines such as Project Insight and internal cross-databases were used to match user disclosures with blockchain-linked activity—signaling an increasingly forensic approach to tax oversight.
The Enforcement Directorate (ED) has taken an even broader view under the Prevention of Money Laundering Act (PMLA):
- ₹4,189.89 crore in crime proceeds traced to VDAs were frozen or seized.
- 29 individuals were arrested in crypto-linked laundering cases.
- 22 prosecution complaints were filed.
- One accused was designated a Fugitive Economic Offender.
The government also highlighted that the Black Money Act, Benami Property Transactions Act, and Foreign Income and Assets Act all apply to VDAs—allowing action against offshore holdings or crypto used as a benami shield.
A Parallel Economy: TDS Data Reveals Uneven Compliance Across States
New national TDS figures reveal for the first time the geography of India’s crypto tax base.
Across three fiscal years, ₹1,095 crore was collected through TDS on VDA transfers. The states with the highest crypto-tax contributions include:
- Maharashtra: ₹660 crore across three years
- Karnataka: ₹254 crore
- Delhi: ₹57 crore
- Gujarat: ₹82 crore
Meanwhile, several states—including many in the Northeast and hill regions—show negligible or zero VDA tax activity, highlighting regional disparities in adoption and enforcement.
The government also confirmed that three major crypto exchanges were found non-compliant with TDS rules, resulting in ₹125.79 crore in unaccounted income and ₹39.8 crore in TDS shortfall.
Survey actions and search operations have been repeatedly conducted under Sections 132 and 133A of the Income Tax Act.
Money Laundering Risks and the Push for Global Coordination
Despite domestic enforcement, the government reiterated that VDAs remain vulnerable to black-money flows, tax evasion, and cross-border laundering due to their decentralized architecture.
To counter this, India has placed crypto exchanges—both domestic and offshore entities serving Indian users—under the PMLA reporting framework, mandating suspicious-transaction reports to FinCEN’s Indian counterpart, FIU-IND.
Officials maintained that no single nation can regulate crypto alone, and any meaningful framework would require coordinated global standards, common taxonomies, and reciprocal reporting protocols—areas where India is participating through multilateral bodies.
To strengthen investigative capacity, the government has begun training tax and enforcement officials in:
- digital forensics
- blockchain analysis
- crypto-trail tracing
- international compliance frameworks
Specialized short-term digital-forensics programs are also being delivered through NFSU Goa, one of India’s top forensic institutions.
As Parliament continues to debate a formal crypto law, the government’s disclosures signal a tightening surveillance regime—and an acknowledgement that India’s crypto challenge is now both financial and geopolitical, woven into a global regulatory puzzle still waiting for consensus.
