India to Impose 70% Penalty on Undeclared Crypto Gains: Details

The Indian government has announced a major tax crackdown on undeclared cryptocurrency gains. Starting Feb. 1, 2025, unreported crypto profits will face a penalty of up to 70%, with a lookback period of 48 months. 

This move comes under the amendment to Section 158B of the Income Tax Act, introduced in the Union Budget 2025 by Finance Minister Nirmala Sitharaman.

Crypto assets are now classified as Virtual Digital Assets (VDAs), falling under the same tax treatment as cash, jewelry, and gold. The amendment ensures that crypto exchanges and financial institutions report all transactions to tax authorities, increasing regulatory oversight on the industry.

What This Means for Crypto Holders

The government is tightening its grip on cryptocurrency earnings by implementing retrospective taxation. Here’s what crypto investors need to know:

• Heavy penalties: Unreported gains from the past four years will be subject to a 70% penalty, plus additional interest and fines.
• Mandatory reporting: Crypto transactions must be disclosed under Section 285BAA of the Income Tax Act.
• Increased oversight: Authorities will conduct block assessments to identify undeclared crypto income.
• Retroactive enforcement: The new tax regime applies from February 1, 2025, covering gains made in the last 48 months.

A statement from the budget proposal highlighted that any entity dealing with crypto will be required to file reports under Section 285BAA. This means exchanges, brokers, and financial institutions must keep detailed records of all crypto transactions.

India’s Crypto Crackdown

The Indian government’s tough stance on crypto taxation follows a series of enforcement actions in 2024. In December, India’s Minister of State for Finance, Pankaj Chaudhary, revealed that tax authorities had uncovered ₹824 crore ($97 million) in unpaid Goods and Services Taxes (GST) from multiple crypto exchanges.

This came after a major tax investigation in August 2024, when Binance received a ₹722 crore ($85 million) tax demand from Indian authorities. These actions indicate a larger effort to regulate and monitor crypto-related financial activities.

India is not alone in tightening crypto regulations. In June 2024, the U.S. Internal Revenue Service (IRS) introduced new reporting rules for digital assets, requiring third-party platforms to report transactions for tax compliance.

However, the U.S. tax changes have faced strong opposition. Some crypto advocacy groups have sued the IRS, arguing that the rules violate constitutional rights. India, however, has taken an even stricter approach by imposing direct penalties on unreported gains.

The Indian crypto market faces increasing regulatory pressure as the government enforces stricter tax policies. While India’s economic affairs secretary Ajay Seth has hinted at possible revisions to the country’s stance on crypto, the immediate future points toward tighter financial scrutiny.