India targets crypto tax dodgers with 44000+ enforcement notices
India’s cryptocurrency market has expanded rapidly, leading to increased attention from tax authorities. The Income Tax Department has issued over 44,000 notices to individuals who failed to report Virtual Digital Asset (VDA) transactions in their income tax returns. This forms part of a broader initiative to ensure compliance and bring crypto-related earnings within the tax framework.
Government’s enforcement drive
The Central Board of Direct Taxes (CBDT) is leading efforts to identify individuals who have not disclosed profits from cryptocurrency activities. A total of 44,057 email and SMS alerts were sent to those flagged for unreported VDA transactions, according to local media outlets. In cases of continued non-compliance, the department has initiated reassessment orders, surveys, and search-and-seizure procedures under the Income Tax Act, 1961.
The NUDGE campaign
The NUDGE programme (Non-Intrusive Usage of Data to Guide and Enable) is an initiative by tax authorities to remind individuals to report their cryptocurrency transactions. It aims to notify potential defaulters before formal legal action is taken, allowing them to update their tax filings and avoid penalties.
India introduced a formal tax structure for VDAs in the financial year 2022–23. This includes a 30% flat tax on all crypto gains without deductions and a 1 percent Tax Deducted at Source (TDS) on each transaction, collected by exchanges or platforms. Across FY 2022–23 and FY 2023–24, taxpayers declared ₹705 crore (approximately $80.6 million) in crypto income.
Enforcement actions have revealed ₹630 crore (approximately $72 million) in unreported income linked to cryptocurrency activities. These cases involve both individual traders and crypto exchanges suspected of underreporting transaction data.
Technology in tax enforcement
The CBDT is employing AI-based tools to monitor financial activity. Project Insight analyses discrepancies between reported income and actual spending or transaction patterns, while the Non-Filer Monitoring System (NFMS) identifies individuals likely required to file tax returns but who have not. Additionally, transaction data submitted by Virtual Asset Service Providers (VASPs) through TDS returns is cross verified with individual tax filings to detect non-compliance.
Despite widespread use of cryptocurrencies in India, strict tax regulations have raised concerns among traders. The 1% TDS on transactions and the 30% tax on gains have discouraged many retail participants. As a result, several exchanges have reported reduced trading activity, staff reductions, and, in some cases, closures.
Pakistan has proposed using surplus energy for Bitcoin mining, indicating a more flexible stance on cryptocurrency. The UAE has removed Value Added Tax on crypto transactions, making it a favourable environment for blockchain businesses.
Future outlook for India’s crypto sector
In July 2025, BJP spokesperson Pradeep Bhandari proposed the idea of a national Bitcoin reserve. Coinbase has announced plans to re-enter the Indian market later this year, reflecting confidence in its long-term potential. Despite current regulatory challenges, India remains a significant player in the global crypto landscape. The future will depend on how effectively the government balances regulation with innovation.
As more individuals and institutions in India engage with cryptocurrency, authorities are increasing oversight to prevent tax evasion involving digital assets. This approach reflects the government’s intent to build a strong compliance framework around emerging financial technologies.
