Crypto Income Evaders: Income Tax Dept. Heightens Crackdown on Individuals & Entities Misrepresenting VDAs in ITR
The crackdown is specifically aimed towards individuals and entities who are alleged to have masked their crypto gains for the assessment years 2023–24 and 2024–25
India’s Income Tax Department has launched a targeted crackdown on individuals and entities that failed to accurately report income from cryptocurrencies, formally termed ‘Virtual Digital Assets’ (VDAs) within their Income Tax Returns (ITRs).
Evaders cannot say that they did not see this coming, it was just a matter of when the Department would go all in. The Department has undertaken its latest mission, using following growing discrepancies between filed returns and exchange-reported data.
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The move, prompted by advanced data analytics, forms part of the Central Board of Direct Taxes (CBDT)’s ongoing efforts to ensure tax compliance in the evolving digital economy.
As per a report published by Business Today, the department is now pursuing a growing list of taxpayers suspected of laundering unaccounted income through underreported or undisclosed cryptocurrency transactions.
CBDT has identified thousands of high-risk cases where taxpayers have either omitted to disclose the specifics under the mandatory “Schedule VDA” that is present in the ITR Forms.
Certain taxpayers have also been found to have falsely claimed deductions and preferential tax rates, both of which constitute breach of various provisions under the Income Tax Act, 1961. These individuals and entities are alleged to have masked their crypto gains for the assessment years 2023–24 and 2024–25, violating Section 115BBH introduced in the Finance Act, 2022.
According to sources, the Income Tax Department is using real-time reconciliation between ITRs and Tax Deducted at Source (TDS) reports filed by Virtual Asset Service Providers (VASPs) to uncover mismatches and non-disclosures.
Reports suggest that the Department has already dispatched thousands of compliance emails urging defaulters to revise and refile their ITRs to avoid further scrutiny.
In an earlier decision, the Supreme Court of India had emphasized the contradiction in taxing cryptocurrencies at 30% without establishing a regulatory framework. While hearing the matter of Shailesh Babulal Bhatt v. State of Gujarat (2025), the Court noted that taxing crypto implies state recognition and urged the government to regulate the sector formally.
Justice Surya Kant had remarked, “If you can tax it at 30%, also please regulate it,” pointing out the current vacuum in legal and regulatory oversight for digital assets.
Currently, India levies a 30% flat tax on crypto income with a 1% TDS on transactions exceeding ₹50,000 for individuals and ₹10,000 for other taxpayers. Taxpayers cannot deduct expenses other than the acquisition cost, nor can they offset VDA losses against any other income.
Discrepancies flagged by the department while actively matching taxpayer-submitted ITRs with TDS records from crypto exchanges may lead to selections for detailed verification or scrutiny.
This initiative marks the third iteration of the CBDT’s Non-Intrusive Usage of Data to Guide and Enable (NUDGE) campaign following earlier drives that addressed foreign asset disclosure and fictitious deductions under Section 80GGC.
Crypto users can be certain of one thing - the department is watching, and compliance with crypto tax provisions is no longer an optional act.
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