Parliamentary panel briefed on VDA risks
India’s Income Tax (I-T) Department has raised fresh concerns over the risks posed by virtual digital assets (VDAs) such as cryptocurrencies, aligning its position with earlier warnings from the Reserve Bank of India. According to a Times of India report citing sources, the tax department flagged these issues in a presentation before the Parliamentary Standing Committee on Finance.
Concerns over anonymity and fund movement
Tax officials reportedly cautioned that VDAs could be used to move funds outside the formal financial system, bypassing regulated intermediaries. The anonymous, borderless and near-instant nature of cryptocurrency transactions was cited as a key concern, increasing the risk of tax evasion and illicit fund flows.
Offshore platforms complicate enforcement
The department highlighted that offshore crypto exchanges, private wallets and decentralised platforms make it “very difficult” to identify taxable income. Officials noted that the anonymity associated with VDAs complicates efforts to trace ownership, verify holdings and establish transaction trails.
Jurisdictional limits and recovery challenges
According to the report, tax authorities also pointed to jurisdictional constraints and limited cross-border information sharing as major hurdles. These factors, combined with offshore VDA activity, significantly weaken the department’s ability to assess transactions accurately or recover pending tax dues linked to crypto assets.
Enforcement actions already underway
The concerns come after the I-T department last year sent nearly 44,000 emails and messages to individuals who failed to disclose cryptocurrency transactions in their FY25 income tax returns. Officials have also mandated registration for entities dealing in VDAs and taken action against non-compliant crypto exchanges, including bans and show-cause notices for failure to register with the Financial Intelligence Unit.
Policy backdrop and taxation regime
India has maintained a cautious stance on cryptocurrencies despite global adoption trends. The government introduced a stringent tax framework in 2022, including a 1% TDS on crypto transactions above ₹10,000 and a 30% tax on capital gains. Between FY23 and FY24, the Centre collected ₹705 crore in taxes from VDA-related income, underlining its regulatory-first approach to the sector.
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