Attention, cryptocurrency investors! If you’ve earned from cryptocurrency and haven’t declared it in your Income Tax Return (ITR), it’s time to be very cautious. The Income Tax Department has sent emails to thousands of individuals who either failed to disclose income from Virtual Digital Assets (VDAs) or provided incorrect information in their ITRs. This move signals a much stricter approach by the tax authorities towards cryptocurrency income.

Who is Receiving Notices? / Notice Recipients

Sources indicate that this investigation primarily focuses on assessment years 2023-24 and 2024-25. The Income Tax Department suspects that some high-risk taxpayers might have invested unaccounted income into cryptocurrency. For a portion of these individuals, investigations have already begun under suspicion of tax evasion and money laundering. This rigorous review of cryptocurrency income is a clear indicator of the department’s heightened vigilance.

The department has urged these individuals to file an updated ITR. This action is based on a thorough reconciliation of TDS data received from crypto exchanges and the ITRs filed by taxpayers. This data matching helps the department identify discrepancies in declared cryptocurrency income.

Cryptocurrency Income Tax Rules / Crypto Income Tax

Under Section 115BBH of the Income Tax Act, income derived from cryptocurrency is subject to a flat 30% tax, along with applicable surcharge and cess. It’s crucial to understand that no expenses or loss adjustments are permitted against this cryptocurrency income.

Cryptocurrency Income Alert: Income Tax Department Initiates Strict Scrutiny

Furthermore, any losses incurred from cryptocurrency cannot be set off against any other income, nor can they be carried forward to subsequent years. This specific rule makes cryptocurrency income unique in terms of tax treatment. The Income Tax Department has found that many taxpayers either did not declare their VDAs in their ITRs or applied lower tax rates, which is a direct violation of the existing regulations on cryptocurrency income.

“Trust but Verify” Policy in Action / Department’s Strategy

This move by the Central Board of Direct Taxes (CBDT) aligns with their “trust taxpayers” principle. However, it simultaneously emphasizes a strong “verify” component. The department is actively using advanced data analytics and TDS records to ensure that the full tax due on cryptocurrency transactions and cryptocurrency income is paid.

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The objective is to foster compliance while deterring under-reporting of cryptocurrency income. This proactive approach highlights the government’s commitment to bringing all forms of income, including those from the rapidly evolving cryptocurrency market, under the tax net. So, if you’ve been involved in cryptocurrency, reviewing your tax declarations thoroughly is essential to avoid potential scrutiny.