VDA Regulation: India’s ITD Flags Crypto Tax Evasion Risks
India’s financial watchdog has once again raised concerns about the risks inherent in the crypto industry, now focusing on tax enforcement. According to the latest reports, the Income Tax Department of India (ITD), under the Central Board of Direct Taxes (CBDT), underscored the high risks of crypto tax evasion amid regulatory uncertainty.
During a parliamentary standing committee on finance, the ITD officials have reportedly discussed these crypto tax evasion risks. They highlighted the need for a comprehensive regulatory framework, detailing the rules of crypto taxation.
Crypto Tax Evasion Risks Unveiled
A Times of India report, published today, revealed the ongoing tensions in the Indian crypto regulatory space. While the country raised its voice against the growing use of digital assets in the country, citing possible threats, the authority is now concerned about crypto tax evasion risks.
Notably, the Indian government expressed concerns about the difficulty in tracking taxable income from crypto transactions. The Income Tax Department asserted that offshore exchanges, private wallets, and decentralized finance (DeFi) tools pose significant risks of tax evasion. According to the ITD, these platforms make it challenging for the officials to trace taxable accounts.
On Wednesday, the Financial Intelligence Unit (FIU), the Department of Revenue, the CBDT, and other agencies convened for a parliamentary meeting. The gathering mainly focused on discussing a report on “A Study on Virtual Digital assets (VDAs) and Way Forward.”
Specifically, the ITD highlighted the jurisdictional challenges of offshore VDA activity. The officials argued that offshore exchanges make it complicated to identify holders of VDAs as they involve multiple jurisdictions. This makes the task of taxation “virtually impossible,” stated the ITD. The authority added,
“Although there have been efforts in recent months on information sharing, it remains difficult, inhibiting the ability of tax officials to undertake proper assessment and reconstruction of transaction chains.”
India’s Crypto Tax Rules: A Closer Look
India has been facing backlash for the lack of a clear regulatory framework for the crypto industry. The authority’s skeptical and cautious approach to digital assets was one of the main reasons for India’s failure to accept crypto as a legitimate store of value. Instead of identifying cryptocurrencies as a valuable alternative to fiat, the Indian government classifies them as “Virtual Digital Assets” (VDAs).
The country’s heavy taxation rules make it challenging for its crypto enthusiasts to engage in active trading. India imposes a flat 30% crypto on profits from transactions. This is also accompanied by a 1% Tax Deducted at Source (TDS) on all transfers, regardless of profits.
Despite these rigid rules, India is experiencing a massive growth in crypto users. As reported earlier this week, new users prefer to invest on a long-term basis, which resulted in a staggering increase in crypto SIPs in India. Reportedly, in 2025, Indian exchanges have recorded a 60% growth in the creation of SIP accounts, with CoinDCX leading the charge.
As experts cite, the Indian crypto industry is currently in a developing stage. With the FIU approving about 49 crypto exchanges last year, and more exchanges being established, the country is seeing a remarkable growth in digital asset adoption and usage. Although the current crypto tax regime creates “friction rather than fairness,” as noted by CoinSwitch co-founder Ashish Singhal, the industry is looking ahead for a better environment.
