India’s income tax department has formally flagged cryptocurrencies and other virtual digital assets (VDAs) as a major systemic risk, aligning itself more closely than ever with the Reserve Bank of India’s long-standing scepticism toward digital tokens. In a recent presentation to the parliamentary standing committee on finance, tax officials outlined how cryptocurrencies undermine traditional oversight mechanisms, according to people familiar with the discussions.
The core concern, officials said, lies in the architecture of cryptocurrencies themselves. Anonymous ownership, near-instant cross-border transfers and the absence of regulated intermediaries allow funds to move rapidly through channels that are largely invisible to domestic authorities. In such a system, tax officials warned, income can be generated, shifted or concealed with minimal traceability.
Certified Cyber Crime Investigator Course Launched by Centre for Police Technology
While India has stopped short of an outright ban, the message from both the central bank and the tax administration has become increasingly consistent: cryptocurrencies sit uneasily with the country’s regulatory, fiscal and enforcement frameworks.
Offshore Platforms and Opaque Ownership
Tax authorities told lawmakers that enforcement challenges are compounded by the global nature of crypto markets. A significant portion of trading activity involving Indian users takes place on offshore exchanges, private wallets or decentralised platforms that do not fall under Indian jurisdiction.
This, officials said, makes it exceptionally difficult to identify beneficial owners, assess taxable income or reconstruct transaction chains. Even when authorities detect suspicious activity, they may be forced to deal with multiple jurisdictions—often with limited cooperation agreements—rendering verification and recovery of tax dues nearly impossible.
Although international efforts to improve information sharing on crypto transactions have gathered pace in recent months, tax officials cautioned that the practical benefits remain limited. “The opacity is structural,” one person familiar with the presentation said, adding that the technology itself often outpaces regulatory tools.
RBI’s Long-Standing Objections
The income tax department’s stance reinforces the Reserve Bank of India’s repeated warnings about cryptocurrencies. The central bank has consistently argued that digital assets lack intrinsic value, are highly volatile and expose investors to significant financial risk.
Beyond investor protection, enforcement agencies have also raised alarms about the potential misuse of VDAs for money laundering and terror financing. The speed and pseudonymity of crypto transactions, officials say, can make them attractive for illicit activity, particularly when routed through unregulated or lightly regulated platforms.
India’s cautious posture places it among a group of countries that have resisted fully legitimising cryptocurrencies and stablecoins, despite sustained lobbying from parts of the industry and contrasting approaches adopted by some advanced economies.
Tax Safeguards Without Endorsement
Despite its reservations, the government has not ignored the growing presence of crypto assets among Indian investors. Instead, tax authorities have sought to erect guardrails aimed at monitoring activity rather than endorsing it.
Measures such as the imposition of tax deducted at source (TDS) on crypto transactions are designed to create data trails and identify beneficiaries. Authorities have also mandated registration for entities dealing in VDAs, seeking to bring at least part of the ecosystem within a formal reporting framework.
Yet officials concede that these tools have limits, particularly when exchanges operate overseas or remain unregistered with India’s Financial Intelligence Unit. Issuing summons, enforcing compliance or collecting taxes becomes significantly harder in such cases.
For now, the government’s approach reflects a delicate balance: tolerating crypto activity at the margins while repeatedly cautioning lawmakers and the public about its risks. As parliamentary scrutiny continues, the growing convergence between the tax department and the central bank suggests that India’s wariness of cryptocurrencies is hardening into a shared institutional position—one rooted less in ideology than in the practical difficulties of governing a borderless financial system.
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.
