Budget Blow: Crypto traders may face 60% tax penalty for undisclosed income under the new proposed IT Act Provisions

Union Budget 2025 has proposed to introduce crypto under Section 158B of the Income Tax Act that reports ‘undisclosed income’, and it’s more than what meets the eye.

This section will give the power to government agencies to conduct block assessment or investigation of undisclosed crypto income of traders, which if found not reported will amount to as high as 60 percent income tax fine for the entire period of the unreported crypto income, as mentioned under 158BA(7) referring to ‘Tax in the case of block assessment of search cases.’

This will be retrospectively applicable from February 1, 2025.

Meyyapan Nagappan, Partner, Tax and Impact Finance, Trilegal told Moneycontrol, “Virtual digital assets have been brought within the ambit of undisclosed income for the purposes of block assessment. Block assessment is a set of special procedures to tax undisclosed income relating to multiple years by the government agencies.”

“Pursuant to this change the risk for retail investors or traders of crypto for not having disclosed crypto income increases significantly. The tax rate is much higher under the block assessment process if undisclosed income is discovered. This is likely intended to incentivise traders and investors to transact through regulated exchanges that also undertake tax withholding,” he added.

Sumit Gupta, Co-founder, CoinDCX said, “There are some provisions aimed at achieving individual tax compliance for VDA investors, which will likely lead to more compliance burdens on domestic exchanges that are already adhering to the regulations.”

An FAQ document on these Income Tax Act changes said that India has been included in the list of 52 "Relevant" jurisdictions for the purpose of Crypto Asset Reporting Framework (CARF).

“CARF provides for the automatic exchange of tax-relevant information (AEOI) on Crypto-Assets. The G20 Leader’s New Delhi Declaration called for the swift implementation of the CARF. To enable this an amendment is being brought for the prescribed Reporting Entities to furnish information of crypto-asset," it explained.

Another change proposed was made in an amendment to Clause (47A) of section 2 to insert sub-clause (d) wherein, the definition of crypto asset has been explained while taking it as a sub-set to wider virtual digital assets (VDAs) category. Crypto is being defined as a digital representation of value that relies on a cryptographically secured distributed ledger or a similar technology to validate and secure transactions, whether or not already included in the definition of virtual digital asset.

This will be applicable from April 1, 2026.

A new proposed section 285BAA under Clause 85 has been added relating to obligation to furnish information on transaction of crypto-asset by entities

No relief on high taxes

Apart from these changes, there has been no update on reduction of high VDA taxes and TDS charged for the crypto sector.

At present, taxes on VDAs include a 30 percent tax on income from crypto and other digital assets and 1 percent tax deducted at source (TDS) on every crypto transaction of Rs 10,000 in India.

Ever since these taxes were implemented in 2022, the Indian crypto exchanges lost nearly 80-90 percent of its trading volumes it comparison to the peak bull run volumes seen in 2021.

CoinDCX’s Gupta said, “We were hoping for at least some amendments to create parity between tax-compliant VASPs and non-compliant offshore exchanges. Despite providing the government with ample justification regarding the ambiguity in the language of the current TDS Section 194S, the concerns around Indian wealth being shifted offshore and the significant loss to the tax exchequer have been overlooked.”

“International exchanges should be obligated to the same 1% TDS as compliant Indian exchanges. As a compliant company, we are disappointed,” he added.

Bringing down taxes could have attracted more retail and institutional participation in crypto trading in India amidst an ongoing bull run (Bitcoin crossed $100,000 recently) in the sector post Donald Trump’s US election victory.

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Disclaimer: The content above is only the author's opinion which does not represent any position of Followin, and is not intended as, and shall not be understood or construed as, investment advice from Followin.
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