Understanding CBDT’s Investigation on Crypto Tax Evasion
Government Takes Action Against Unreported Crypto Income
The Central Board of Direct Taxes (CBDT) is currently investigating potential tax evasion and money laundering linked to crypto investments. Their focus is on high-risk transactions involving virtual digital assets (VDAs).
What’s Going On?
The CBDT is examining individuals and entities involved in high-risk VDA transactions. Many have not complied with key provisions of the Income Tax Act, 1961. This includes failing to disclose income from digital assets and incorrect tax filings.
Tax Rules for Virtual Digital Assets
Income from VDA transfers is taxed at a flat rate of 30% under Section 115BBH of the Income Tax Act. This rate includes applicable surcharge and cess. The law does not allow deductions for expenses except for the cost of acquisition. It also disallows setting off or carrying forward losses from VDA transactions.
Common Issues with Compliance
Government data shows that many taxpayers are not following the rules. They either fail to report gains from digital assets or pay tax at lower rates. Some incorrectly claim benefits like cost indexation.
Steps Taken by CBDT
The CBDT has compared income tax return (ITR) filings with TDS data from crypto exchanges. Discrepancies have led to wider scrutiny. Taxpayers found in default could face further verification or scrutiny under the law.
Recently, the CBDT sent emails to thousands of high-risk defaulters. They urged these individuals to review and update their ITRs to accurately reflect income from VDA transactions.
Encouraging Voluntary Compliance
This action is part of the CBDT’s ongoing effort to promote voluntary compliance. They use the “NUDGE” framework, which stands for Non-intrusive Usage of Data to Guide and Enable taxpayers. This falls under their “Trust Taxpayers First” philosophy.
Previous NUDGE Campaigns
This is the third NUDGE campaign in the past six months. Previous efforts included:
- Disclosure of foreign assets
- Withdrawal of ineligible deductions claimed under section 80GGC
