Indian Tax Authorities Caution Against Crypto Transactions Impacting Tax Enforcement

Indian Tax Authorities Warn Crypto Transactions Could Hinder Tax Enforcement

Indian tax officials have raised alarms regarding the increasing activity in cryptocurrency, cautioning that its expansion could impair the country’s ability to enforce tax regulations effectively.

Key Takeaways:

Indian tax authorities express concerns that tracking income from crypto transactions is becoming harder.
Offshore exchanges, private wallets, and decentralized finance (DeFi) tools are significant hurdles for effective monitoring.
Despite stringent taxes and growing adoption, there are still gaps in cross-border information sharing that need to be addressed.

The alert was issued by the Income Tax Department (ITD), which is part of the Central Board of Direct Taxes, during a recent meeting of a parliamentary standing committee on finance, as reported by The Times of India.

Indian Lawmakers Examine the Risks Associated with Cryptocurrency

The warning came from a meeting on Wednesday where various government agencies, including the Financial Intelligence Unit (FIU), the Department of Revenue, and the Central Board of Direct Taxes (CBDT), convened.

The discussion revolved around a report titled "A Study on Virtual Digital Assets (VDAs) and Way Forward," which analyzed the regulatory implications of cryptocurrency adoption.

Officials stated that the ITD pointed out how the existence of offshore exchanges, private wallets, and DeFi platforms complicates the tracking of taxable income.

The capacity of cryptocurrencies to facilitate quick and sometimes anonymous cross-border transfers poses major challenges for traditional enforcement mechanisms.

Officials noted that these "anonymous, borderless, and near-instant" transactions enable funds to evade regulated intermediaries, creating a lack of transparency for tax authorities.

The complexity increases as the involvement of multiple jurisdictions can render it "virtually impossible" for authorities to identify asset holders and trace transaction histories when activities cross several countries.

Although the government has made strides in improving information sharing in recent months, tax officials highlighted that significant gaps still exist, particularly for transactions that are processed through offshore platforms.

India has one of the strictest tax regimes globally for digital assets, imposing a flat 30% tax on profits from cryptocurrency transactions. There is also a 1% tax deducted at the source on every transfer, irrespective of whether the trade results in a profit or loss.

Despite the heavy tax burden, cryptocurrency trading is legal in India, and the country has recently welcomed the return of Coinbase in 2025.

Adoption of cryptocurrencies is rising steadily, with the FIU approving 49 crypto exchanges in the fiscal year 2024–2025.

Reserve Bank of India Raises Concerns About Stablecoins Impacting Financial Stability

India’s central bank warns that the rapid growth of privately-issued stablecoins could threaten financial stability and erode trust in traditional currency, advocating for prioritizing central bank digital currencies (CBDCs).

This caution was highlighted in the most recent Financial Stability Report from the Reserve Bank of India (RBI), reflecting a consensus among the nation's top financial regulators.

The RBI emphasized that CBDCs help maintain the integrity of money and serve as the ultimate settlement asset, positioning them as a more dependable foundation for the financial system.

In contrast, the report described stablecoins as a growing source of risk, especially during market turbulence, and urged policymakers to carefully evaluate their effects and tailor their responses according to local conditions.

While global growth appeared stable in 2025, bolstered by government spending, investments in AI, and heightened trade, the RBI warned that underlying vulnerabilities are intensifying.

Asset prices remain inflated, debt levels are high, and the interconnection among financial institutions is increasingly pronounced.