CBDT Uses Crypto Exchange Data To Catch Untaxed Crypto Income

CBDT begins action against individuals and entities in crypto transactions for non-compliance with tax regulations, urging correction and possible penalties, writes Saurabh Shulka.

New Delhi: The Central Board of Direct Taxes (CBDT) has initiated action against individuals and entities involved in cryptocurrency transactions who have failed to comply with tax regulations. Using data analytics and information from crypto exchanges, the department has identified several cases where income from Virtual Digital Assets (VDAs) was either under-reported or not disclosed. Taxpayers have been asked to review and update their income tax returns as part of the CBDT’s latest NUDGE campaign focused on promoting voluntary compliance.

According to highly placed sources, CBDT is investigating tax evasion and laundering of unaccounted income by high-risk persons through investment in cryptocurrency for the Assessment Year (AY) 2023-24 and AY 2024-25. Such entities and individuals which are engaged in VDA transactions and have failed to comply with the Income-tax Act, 1961, have been identified for verification.

Officials known with the matter said that Section 115BBH of the Income Tax Act, 1961, inserted by the Finance Act, 2022, prescribes a flat tax rate of 30% (plus applicable surcharge and cess) on income from VDA transfer. The provision does not allow deduction of any expenses except the cost of acquisition. Further, set-off of loss from VDA investment or trading is not allowed to be set off against any other income or for carry forward to subsequent years, he added.

Data analytics of the tax department has shown that a significant number of persons have violated provisions of the Income Tax Act by not filing Schedule VDA of ITR and offering tax on the income earned at a lower rate or claiming cost indexation. Besides this, ITRs filed by taxpayers are also being verified with TDS returns filed by the Virtual Asset Service Providers (VASPs), popularly known as crypto exchanges, and defaulters may be selected for further verification/ scrutiny.

It is learnt from reliable sources that CBDT has recently sent emails to thousands of defaulting persons to review their ITR and update if any income on account of VDA transactions has not been properly declared.

According to another official, CBDT has recently embarked on a new approach termed as NUDGE (Non-intrusive Usage of Data to Guide and Enable) Taxpayers, as a part of the TRUST Taxpayers FIRST philosophy. This campaign is seen as the third NUDGE campaign launched by CBDT in the last six months. Earlier NUDGE campaigns were on the declaration of foreign assets/ income by taxpayers and the withdrawal of bogus claims of deduction under section 80GGC.