India’s crypto investors are under growing scrutiny as the Income Tax Department launches a massive compliance drive, issuing over 44,000 notices to individuals accused of underreporting or failing to declare crypto income. The sweeping campaign is part of the government’s broader effort to rein in undisclosed gains from virtual digital assets (VDAs), including Bitcoin and other cryptocurrencies, in the absence of a formal legal framework.

$75 Million in Undeclared Crypto Revenue Unearthed

According to local reports, Indian authorities have identified a staggering ₹630 crore ($75 million) in unreported income from VDA transactions for the financial years 2022–23 and 2023–24. This discovery closely rivals the ₹705 crore ($83.75 million) that was voluntarily disclosed by taxpayers during the same period, highlighting the scale of underreporting in the crypto space.

To uncover these discrepancies, the Central Board of Direct Taxes (CBDT) has leaned heavily on data analytics and surveillance systems under its “NUDGE” initiative, short for Non-Intrusive Usage of Data to Guide and Enable. The campaign utilises advanced tools like Project Insight, the Non-Filer Monitoring System (NMS), and internal databases to match trading activity reported by Virtual Asset Service Providers (VASPs) with individual tax filings.

When inconsistencies arose, such as missing Schedule VDA entries or discrepancies in declared crypto profits, formal notices were promptly dispatched. In certain cases, further enforcement action is currently underway.

India’s Crypto Tax Regime: Strict But Unclear

India’s crypto tax structure is one of the harshest globally. Since April 2022, gains from cryptocurrencies are taxed at a flat 30%, with an additional 1% TDS (Tax Deducted at Source) on every single transaction. While the move was intended to formalise the sector and bring transparency, it has had the opposite effect in many cases.

Rather than encouraging compliance, many crypto traders and firms have either reduced their domestic activity or shifted operations abroad. The lack of basic deductions, exemptions, or a progressive tax structure has further alienated stakeholders, particularly retail investors and startups.

At the same time, the legal status of crypto in India remains ambiguous. Cryptocurrencies are neither legal tender nor explicitly outlawed, placing them in a grey zone. This regulatory vacuum complicates enforcement and fuels uncertainty, allowing bad actors to exploit loopholes and clean players to operate in fear.

Crypto Firms Exit India Amid Policy Paralysis

With no regulatory clarity in sight and aggressive tax measures in place, numerous Indian crypto companies are relocating to more favourable jurisdictions. Destinations like Singapore, Dubai, and the British Virgin Islands have emerged as popular havens due to their balanced regulatory frameworks and lower tax burdens.

One notable example is WazirX, India’s largest crypto exchange, which faced scrutiny after a $230 million hack. The platform’s parent company is based in Singapore, a move that allowed it to navigate around India’s complex legal terrain and mitigate regulatory risk.

Such relocations not only impact local employment and innovation but also dilute the country’s position in the fast-growing global digital asset economy.

While India Cracks Down, the World Moves Ahead

While India leans on enforcement and tax penalties, other countries are adopting more forward-looking approaches. The European Union’s Markets in Crypto-Assets (MiCA) framework, the UK’s financial promotions regime, and U.S. efforts to legislate stablecoins all reflect a growing international trend: regulate to innovate.

By contrast, India’s approach risks reducing crypto to merely a taxable commodity instead of recognising it as a long-term asset class with economic potential. Without a comprehensive policy framework, investors and innovators alike remain in limbo, subject to punitive measures but deprived of regulatory clarity.

A Call for Clarity and Collaboration

With over 44,000 notices issued and investigations underway, the government’s intent to enforce tax compliance is unmistakable. However, unless matched by a well-defined and supportive legal framework, India risks driving away the very innovation it hopes to regulate.

To harness the potential of blockchain and digital assets, India must move beyond punitive taxation and offer a regulatory roadmap that encourages responsible innovation, investor protection, and economic participation.