The Income Tax Department (ITD) has sent communications to numerous individuals regarding cryptocurrency transactions that they failed to report in their tax returns, according to official sources.
These transactions are related to assessments for the years 2023-24 and 2024-25.
Officials from the department and the Central Board of Direct Taxes (CBDT) have raised concerns about potential tax evasion and money laundering linked to so-called “high-risk” individuals who may be utilizing undefined income to invest in virtual digital assets (VDAs).
What is a nudge?
Sources mentioned that the IT department has reached out via email to those who haven’t declared their income from cryptocurrency properly, urging them to file an updated income tax return (ITR).
This initiative is part of the department’s “trust taxpayers first” philosophy, essentially nudging individuals to comply without being punitive.
Under section 115BBH of the Income Tax Act from the Finance Act of 2022, a fixed tax rate of 30% (plus additional surcharges and cess) applies to income from cryptocurrency transactions. Notably, this section does not permit deductions, except for acquisition costs.
Additionally, taxpayers cannot offset losses from cryptocurrency investments against other income or carry them forward to later years.
The department’s data analysis indicates that a small number of people have not filed the Schedule VDA, showing that these individuals may have reported their mining income at lower tax rates or indexed costs.
ITRs submitted by taxpayers have been verified by the department, which detected tax deductions at source (TDS) from returns filed by various cryptocurrency exchanges. Those who are found in default may face further scrutiny.
This is the third campaign in the Nudge series initiated by the IT department and CBDT, gently reminding taxpayers of their obligations.
Previous campaigns focused on ensuring accurate declarations of foreign assets and income, as well as retracting incorrect claims under Section 80GGC of the Income Tax Act.
