India’s stance on cryptocurrency is evolving as the government introduces stricter tax regulations while also reassessing its broader approach to digital assets. Recent amendments to the Income Tax Act impose a 70% penalty on undisclosed crypto gains, reinforcing India’s historically cautious position. However, at the same time, officials have signaled a potential policy shift, acknowledging the growing adoption of digital assets worldwide. With the Reserve Bank of India (RBI) expanding its central bank digital currency (CBDC) initiatives and global crypto regulations tightening, India faces a critical decision on how to balance taxation, innovation, and financial oversight in the evolving digital economy.
India’s New Crypto Tax Laws Could Hit Traders With 70% Penalty on Undisclosed Gains
India’s cryptocurrency traders may face steep penalties under new amendments to the country’s tax laws, as the government tightens its grip on digital assets to curb tax evasion and increase transparency.
The new regulation, announced by Indian Finance Minister Nirmala Sitharaman as part of the Union Budget 2025, classifies cryptocurrency gains as part of undisclosed income under Section 158B of the Income Tax Act. The amendment, which is set to take effect retrospectively from Feb. 1, 2025, could result in severe tax penalties of up to 70% for traders who have failed to report their cryptocurrency profits in past assessment years.
Under the revised law, crypto profits will now be treated similarly to traditional assets such as money, jewelry, and bullion in terms of tax assessments. The amendment places digital assets under the Virtual Digital Asset (VDA) category, reinforcing India’s tough stance on cryptocurrency taxation.
According to the amendment, “Crypto asset has been defined in Section 2(47A) of the Act under the existing definition of Virtual Digital Asset […] A reporting entity, as may be prescribed under Section 285BAA of the Act, will be required to furnish information of crypto asset.”
This means that cryptocurrency transactions will now be under strict tax scrutiny, with exchanges and financial institutions required to report all crypto holdings and transactions to the Indian tax authorities.
The latest tax crackdown comes amid rising concerns over unpaid crypto taxes in India. In December 2024, Minister of State for Finance Pankaj Chaudhary revealed that the government had identified ₹824 crore ($97 million) in unpaid Goods and Services Tax (GST) from multiple crypto exchanges. This revelation follows an earlier enforcement action in August 2024, where Binance, the world’s largest cryptocurrency exchange, was hit with a tax demand of ₹722 crore ($85 million) by Indian authorities.
These actions signal India’s determination to enforce tax compliance among cryptocurrency exchanges and traders. The inclusion of crypto in block assessments—a process used to reassess tax liabilities for undisclosed income—will significantly increase penalties for non-compliance.
The most alarming aspect of the amendment is the potential for a 70% penalty on crypto gains that have remained undisclosed for up to four years after the relevant tax assessment year.
According to the official document, “70% of the aggregate of tax and interest payable on additional income disclosed in the updated income tax return (ITR).”
This means that traders who have not declared their crypto profits since 2021 may now face heavy fines and backdated tax payments.
The government’s decision aligns with its broader strategy to tighten tax reporting and enforcement on digital assets, ensuring that cryptocurrency investments do not become a loophole for tax evasion.
The impact of these stringent regulations is already being felt in the Indian crypto market. On Jan. 10, 2025, Bybit—a major global crypto exchange—announced the suspension of its services in India, citing regulatory pressure as a key reason. Bybit’s exit follows the government’s intensified scrutiny of foreign crypto platforms, particularly those operating without full regulatory approval from India’s Financial Intelligence Unit (FIU).
Other exchanges, including Binance and KuCoin, have also faced regulatory actions, leading to increased uncertainty for Indian crypto traders. The new tax amendments may further accelerate this trend, discouraging foreign exchanges from operating in India without strict compliance with local tax laws.
Global Trend of Crypto Tax Regulations
India’s move to tighten crypto taxation is part of a global trend toward stricter regulations in the digital asset space. In June 2024, the US Internal Revenue Service (IRS) introduced a new crypto tax framework, requiring centralized crypto exchanges (CEXs) and brokers to report all sales and exchanges of digital assets starting in 2025.
This has led to growing concerns within the crypto industry, with some experts predicting that more investors may turn to decentralized exchanges (DEXs) to bypass stringent tax reporting requirements. Anndy Lian, an intergovernmental blockchain expert, highlighted the “paradoxical situation” in which overregulation might push traders toward harder-to-monitor decentralized platforms, ultimately making tax enforcement even more challenging.
The US Blockchain Association has already challenged these new IRS rules in court, arguing that extending data collection requirements to decentralized exchanges violates constitutional rights.
With the retrospective nature of the tax amendments, Indian crypto investors now face a critical decision:
Declare past crypto gains before February 2025 to avoid steep penalties.
Ensure compliance with new tax reporting rules to prevent further legal consequences.
Consider shifting trading strategies, including exploring decentralized finance (DeFi) options, though these may still carry risks.
The Indian government’s tax enforcement signals a growing global crackdown on crypto tax evasion, following similar moves in the US, Europe, and South Korea. As the Indian crypto market navigates these regulatory challenges, investors and exchanges alike will need to adapt to the country’s evolving tax landscape.
India Reviews Crypto Regulations Amid Global Adoption and Rising Taxation
In related news, India is now reassessing its regulatory stance as digital assets gain increasing global acceptance. According to Ajay Seth, India’s economic affairs secretary, digital assets ”don’t believe in borders,” signaling a potential policy shift that could see India adapting to the international crypto landscape rather than resisting it.
While the government has long positioned itself against private cryptocurrencies, the rapid adoption of Bitcoin and other digital assets by nation-states appears to be forcing a reconsideration of policy—confirming the game theory scenario that crypto analysts and Bitcoin maximalists have long predicted.
India’s stance on crypto has traditionally been restrictive, with the government implementing harsh taxation policies and maintaining skepticism toward decentralized digital currencies. However, as more nations integrate Bitcoin and other cryptocurrencies into their economies, India risks falling behind in the race to harness blockchain technology and digital finance.
The theory that nation-state adoption of Bitcoin could trigger a domino effect among other countries is well known in pro-crypto circles. El Salvador’s move to adopt Bitcoin as legal tender in 2021 set off a wave of discussions, and more recently, US presidential candidates have hinted at making cryptocurrency a key component of their economic strategies. Even former US President Donald Trump commissioned a working group to explore the potential of digital assets in financial markets, signaling a shift toward regulatory acceptance in the West.
India’s economic policymakers appear to be taking these developments seriously, as evidenced by Ajay Seth’s comments, which suggest a growing recognition that crypto is here to stay and cannot be ignored.
Despite the changing rhetoric, India’s current tax policies remain among the most restrictive in the world. The government levies a 30% capital gains tax on all crypto profits, with no distinction between short-term and long-term investments. This means traders and long-term holders alike are subject to the same high tax burden—a policy that has been widely criticized by industry experts and legal professionals.
Amit Kumar Gupta, a Supreme Court legal practitioner, described India’s crypto tax regime as ”draconian”, arguing that the government is actively trying to disincentivize permissionless blockchain innovation.
India’s CBDC Push: A Digital Rupee Over Crypto?
Even as India maintains a hostile stance toward private cryptocurrencies, the country is aggressively pursuing the development of a central bank digital currency (CBDC).
Former Reserve Bank of India (RBI) governor Shaktikanta Das has been one of the most vocal supporters of the CBDC initiative, calling digital rupees ”the future of currency”. In his December 2024 farewell speech, Das emphasized that India is actively shifting toward a CBDC-driven economy, viewing digital rupees as a more controlled and state-backed alternative to decentralized cryptocurrencies.
Before Das stepped down, the RBI announced a major expansion of its cross-border payment system, with plans to integrate CBDCs into international settlements. The bank is seeking additional trading partners to develop a wholesale CBDC system, where digital rupees would be used for settlements between central banks and financial institutions.
This aligns with the global trend of governments favoring state-backed digital currencies while imposing heavy restrictions on decentralized alternatives like Bitcoin and Ethereum.
India’s regulatory landscape for crypto remains uncertain. On one hand, policymakers are recognizing the growing importance of digital assets and do not want to fall behind as other countries embrace blockchain technology. On the other hand, India continues to push punitive tax measures and prioritize CBDCs over decentralized financial systems.
The biggest challenge for India will be striking a balance between regulation and innovation. While heavy taxation and strict oversight could deter crypto businesses from operating in India, a complete ban on digital assets is increasingly unrealistic in a globally connected economy.
For now, Indian traders and blockchain startups remain in regulatory limbo, awaiting further clarity on whether the government will ease restrictions or double down on its anti-crypto stance. If India does not adapt to the global shift toward digital assets, it may risk being left behind in the next evolution of financial markets.
This article was originally Posted on Coinpaper.com
