During a parliamentary meeting held on January 7, 2026, Indian tax officials raised alarms about the challenges posed by cryptocurrencies to the country”s tax collection framework. Officials from the Income Tax Department, along with representatives from the Financial Intelligence Unit and the Department of Revenue, presented findings to the Parliamentary Standing Committee on Finance. Their report, titled “A Study on Virtual Digital Assets (VDAs) and Way Forward,” highlighted significant issues related to the anonymity of cryptocurrency transactions.
Tax officials elaborated on how cryptocurrencies enable users to transfer funds across borders without detection, complicating income tracking and tax collection. These transactions frequently occur without the involvement of banks or regulated entities, making it increasingly difficult for authorities to ascertain ownership and tax obligations. A major concern arises from the use of offshore exchanges, private wallets, and decentralized finance (DeFi) platforms, which obscure the identity of asset holders.
In instances where foreign exchanges operate outside the purview of India”s Financial Intelligence Unit, tax authorities find themselves limited in their ability to pursue information or legal recourse. Private wallets exacerbate the situation, as the absence of intermediaries makes it nearly impossible to connect wallet addresses to identifiable individuals, especially when assets traverse various blockchains.
India”s stringent tax regulations further contribute to the issue. The country imposes one of the harshest tax regimes on cryptocurrency transactions, with a flat 30% tax on profits and an additional 1% deducted from transactions exceeding ₹10,000 (approximately $115). When combined with a 4% surcharge and an 18% goods and services tax on trading fees, the total tax burden for high-income traders can reach as much as 42.7%. Traders are also prohibited from offsetting losses from one cryptocurrency against gains from another, and they cannot claim expenses beyond their initial purchase costs.
The current tax structure has led to a significant shift in trading behavior. Between July 2022 and July 2023, over $42 billion worth of cryptocurrency was traded on foreign exchanges by Indian users, accounting for more than 90% of total trading activity. As a result, domestic exchanges suffered substantial declines, losing up to 74% of their user base. The government estimates it lost approximately $4.2 billion in potential tax revenue due to this trend.
Despite these hurdles, the Central Board of Direct Taxes (CBDT) is intensifying enforcement efforts. The agency dispatched more than 44,000 notices to individuals who failed to declare their cryptocurrency transactions as part of a campaign known as NUDGE (Non-Intrusive Usage of Data to Guide and Enable). This initiative involves cross-referencing exchange data with reported tax returns, uncovering considerable amounts of undisclosed income. Tax raids revealed ₹888.82 crore ($99.9 million) in unreported crypto earnings during the fiscal year 2024-25, along with additional findings of ₹1,089 crore in undisclosed foreign crypto income and ₹630 crore ($72 million) in hidden domestic assets.
In October 2025, a significant investigation was launched into over 400 wealthy traders suspected of concealing profits earned via Binance from 2022 to 2025. This investigation gained momentum after Binance registered with India”s Financial Intelligence Unit in August 2024, following a penalty payment of $2.25 million. The registration mandated Binance to share user data with Indian authorities, revealing transactions that many traders believed were undetectable.
Tax expert Ashish Karundia cautioned that penalties could reach as high as 300% of the taxes owed under the Black Money Act, potentially leading to criminal charges. Advanced technologies have been implemented by Indian tax authorities to identify tax evaders, including Project Insight analytics and international data sharing through the Crypto-Asset Reporting Framework. These systems automatically generate notices for discrepancies exceeding ₹1 lakh ($1,200) between exchange data and tax filings. However, officials recognize that the inherent design of cryptocurrencies complicates their enforcement efforts.
India boasts the largest crypto user base globally, estimated at 100-150 million individuals. The nation topped the Global Crypto Adoption Index for two consecutive years. The cryptocurrency market in India expanded from ₹22,130 crore in 2022-23 to ₹51,180 crore in 2024-25, with projections suggesting it could reach $13.9 billion by 2033. Currently, 49 cryptocurrency exchanges are registered with the Financial Intelligence Unit, but the government maintains that cryptocurrencies are not considered legal tender, lacking formal recognition.
Industry advocates argue that the government”s approach is creating an environment of fear without providing clarity or protection for investors. Raj Kapoor, founder of the India Blockchain Alliance, stated that the tax department”s stance does not foster a coherent market framework.
Looking ahead, the Union Budget for 2026-27 will be presented on February 1, 2026. The Central Board of Direct Taxes has been engaging with crypto enterprises regarding potential tax reforms. Stakeholders are hopeful for a reduction in the transaction tax rate and the ability to offset losses within crypto trading. However, the recent warnings from parliamentary officials suggest a continued emphasis on enforcement rather than fostering a supportive environment for the industry.
India is confronted with a fundamental contradiction: tax authorities seek revenue from cryptocurrency trading while struggling to enforce compliance on assets designed to function outside traditional financial systems. The stringent tax regime has driven trading offshore, complicating enforcement efforts and perpetuating a cycle that benefits no one. Although the government has established advanced tracking systems, officials concede that the challenges presented by offshore exchanges and private wallets are “virtually impossible” to overcome. The upcoming Budget 2026 will determine whether the current approach will shift towards addressing these issues or continue to prioritize enforcement that has proven ineffective.
