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India’s tax department found that fewer than a quarter of 645,000 people who made crypto transactions in the financial year ended March 2023 reported them in income tax returns.
The finding points to a large reporting gap in one of the world’s most active crypto markets.
Tax Data Shows Wide Reporting Gap
Government documents showed that crypto trading activity was far higher than the number of taxpayers disclosing virtual digital asset transactions. India’s tax department estimated that about 39 million crypto traders held roughly $2.1 billion in digital assets at the end of May.
The department also found cases of misreporting in income tax disclosures and warned that crypto’s trading structure makes assessment and recovery harder than in traditional financial markets.
Offshore Platforms Complicate Tax Checks
Officials flagged offshore exchanges, private wallets and peer-to-peer trades as key obstacles. Transactions routed through overseas platforms can make it harder to identify beneficial owners.
Private wallets can sit outside exchange reporting systems, while rupee-denominated peer-to-peer trades can leave less of a formal trail for tax authorities. The department also cited price volatility and the lack of uniform valuation standards as challenges when assessing crypto assets.
India Taxes VDA Gains at 30%
India taxes income from the transfer of virtual digital assets at a flat 30%, with no deduction allowed except the cost of acquisition. A 1% tax deducted at source also applies to certain payments made to residents for VDA transfers.
The measure was introduced to improve transaction visibility and bring crypto trades into the tax net. The tax department’s findings show that those rules have not fully closed the reporting gap.
Tax Findings Keep Enforcement Pressure Alive
The Ministry of Corporate Affairs is also examining accounting standards and related guidance for virtual digital assets. India has not yet adopted a full crypto market structure law.
Offshore exchanges can serve Indian users after registering with India’s financial intelligence authority, while domestic users continue trading under tax rules.
The immediate issue is enforcement. Tax authorities have rules for virtual digital assets, but the reporting gap shows that matching crypto trades to taxpayers remains difficult.
