- Indian crypto traders face scrutiny as tax notices increase sharply.
- RBI Deputy Governor criticizes Bitcoin, highlighting speculative nature and risks.
- New tax rules discourage crypto trading, boosting transparency and regulation.
Indian crypto traders are finding themselves increasingly under the scrutiny of tax authorities as the Income Tax Department steps up its efforts to ensure compliance. In recent weeks, numerous traders have reported receiving official tax notices, signaling a stricter approach toward crypto taxation.
The notices, issued under Section 133(6) of the Income Tax Act, focus on the Assessment Year 2024-25 and are different from previous years. Rather than asking whether an individual traded crypto, these notices already list details of crypto transactions, including receipts from crypto transfers and profits made through virtual asset dealings.
Notably, they include data matched with the Annual Information Statement (AIS) and Tax Information Statement (TIS), clearly indicating that the government now has access to detailed crypto transaction data.
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Government Monitoring Crypto Activity Closely
The Indian government is no longer turning a blind eye to crypto trading. Authorities are actively tracking transactions through multiple channels, including exchanges that adhere to Know Your Customer (KYC) norms, tax deductions at source (TDS) on crypto transactions, and bank transaction records.
This interconnected data network allows the tax department to cross-check reported incomes with the actual trading activities. As a result, crypto trading is no longer hidden from authorities, especially for those using KYC-compliant platforms or Indian crypto exchanges.
This marks a shift from previous years when crypto trading was largely unregulated. The tax department is no longer issuing warnings but instead taking enforcement actions. Notices now demand that taxpayers provide explanations for the crypto income already detailed in their records. For traders who have not properly reported their gains, this could lead to penalties, interest charges, or even more intense scrutiny.
RBI’s Criticism of Bitcoin Adds to Growing Concerns
Earlier this month, RBI’s Deputy Governor T. Rabi Sankar also weighed in on the growing concerns surrounding cryptocurrency, particularly Bitcoin. Sankar criticized Bitcoin, stating that it holds no real economic value and primarily exists due to speculative demand. He emphasized that Bitcoin’s price is dictated solely by what buyers are willing to pay, with no institutional backing or guarantees.
Sankar further highlighted the contrast between Bitcoin and blockchain technology. While he acknowledged the value of blockchain beyond cryptocurrency, he compared Bitcoin’s market behavior to past speculative bubbles, such as tulip mania.
The RBI Deputy Governor argued that Bitcoin does not qualify as a financial asset due to its lack of cash flow generation and its absence of ownership in any productive venture. He also pointed out the extreme volatility of Bitcoin and the wider crypto market, noting that some assets have seen declines of up to 70%, underscoring the risks involved.
New Tax Rules Make Crypto Trading Less Attractive
The recent changes in tax regulations have made crypto trading more challenging for many in India. A flat 30% tax on profits, with no provision to offset losses, and a 1% TDS on crypto transactions have discouraged frequent trading. These regulations have made short-term trading less appealing, especially for those used to quick, high-volume transactions.
While these new rules make crypto trading less flexible, they also provide official recognition for digital assets. Crypto trading is now firmly embedded within the legal framework, which could boost transparency and foster long-term trust in the Indian crypto market. The government’s proactive stance toward crypto taxation signals that digital assets are here to stay and will be treated with greater legitimacy.
These changes mark a new chapter in the Indian crypto landscape. As the government continues to refine its approach to cryptocurrency, traders must be prepared for the growing compliance demands that come with this new era of regulation.
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