Indian cryptocurrency investors may be hit with significant tax penalties on unreported gains, following recent changes to the nation’s tax legislation. The amendments will see cryptocurrencies fall under Section 158B of the Income Tax Act, which pertains to undisclosed income. This news comes from Indian Finance Minister Nirmala Sitharaman’s Union Budget 2025 announcement.
The changes enable unreported cryptocurrency profits to undergo block assessments, thereby equating their tax treatment to conventional assets including cash, jewelry, and bullion. The new amendment categorizes cryptocurrencies as Virtual Digital Assets (VDAs).
The amendment states: “Crypto asset has been defined in section 2(47A) of the Act under the existing definition of Virtual Digital Asset… A reporting entity, as may be prescribed under section 285BAA of the Act, will be required to furnish information of crypto asset.”
Notably, the new tax stipulation will be applicable retrospectively from February 1, 2025. At the close of December 2024, Pankaj Chaudhary, India’s Minister of State for Finance, revealed that several crypto exchanges owed 824 crore Indian rupees ($97 million) in unpaid goods and service taxes (GST).
This disclosure followed demands by Indian law enforcement agencies in August for 722 crore Indian rupees ($85 million) in unpaid taxes from Binance. Indian authorities may impose a tax penalty of up to 70% on undisclosed crypto profits, potentially applying to gains kept hidden for up to 48 months post the relevant tax assessment year.
The document stated: “70% of the aggregate of tax and interest payable on additional income disclosed in the updated income tax return [ITR].”
The new tax directives arrive two weeks after Bybit exchange ceased its operations in India on January 10, attributing the suspension to regulatory pressures as they strive to secure a full operational license from India’s Financial Intelligence Unit.
Stateside, crypto tax legislation gained momentum in June 2024 when the US Internal Revenue Service (IRS) implemented a new regulation, making US cryptocurrency transactions subject to third-party tax reporting for the first time.
Beginning in 2025, centralized crypto exchanges (CEXs) and other brokers will initiate reporting of digital asset sales and exchanges, including cryptocurrencies. This move could drive crypto investors towards decentralized platforms in a “paradoxical situation”, making tax revenue tracking more challenging, suggests Anndy Lian, an author and intergovernmental blockchain expert.
Meanwhile, the Blockchain Association lodged a lawsuit against the IRS in December 2024, arguing the rules to be unconstitutional as they classify decentralized exchanges under the “broker” term, hence extending data collection requirements.
