Budget Blow: Crypto traders may face 60% tax penalty for undisclosed income under the new proposed IT Act Provisions
Feb 4, 2025, 11:35 IST
Budget Blow: Crypto Traders Face 60% Tax Penalty for Undisclosed Income
In a major crackdown on unreported crypto earnings, the Indian government has proposed a 60% tax penalty on undisclosed income under new provisions of the Income Tax Act. The move aims to tighten regulations around digital assets and ensure compliance with tax laws. If implemented, crypto traders failing to disclose earnings could face heavy financial consequences, adding to the existing 30% tax on cryptocurrency profits. This proposal signals stricter scrutiny of crypto transactions and a push for greater transparency in the sector.
Budget Blow: Crypto Traders May Face 60% Tax Penalty for Undisclosed Income Under New Proposed IT Act Provisions
The Indian government is ramping up its scrutiny of cryptocurrency transactions by proposing a 60% tax penalty on undisclosed crypto income under new amendments to the Income Tax Act. This move signals a tightening of tax compliance measures and aims to curb tax evasion in the rapidly growing digital asset space.
Stricter Taxation on Crypto Earnings
India has already imposed a 30% tax on profits from cryptocurrency trading, along with a 1% TDS (Tax Deducted at Source) on transactions. However, concerns have been raised about traders and investors failing to disclose their digital asset earnings, leading to potential tax losses for the government.
Under the newly proposed provisions, crypto traders who fail to report their income from virtual digital assets (VDAs) may face:
A 60% penalty on the undisclosed amount.
Additional interest and penalties under existing tax laws.
Heightened scrutiny and potential legal action for non-compliance.
Government’s Rationale Behind the Move
The government’s aggressive stance on crypto taxation stems from concerns over:
1. Tax Evasion: Many traders are reportedly not declaring their crypto gains or using foreign exchanges to bypass regulations.
2. Money Laundering & Fraud: The anonymous nature of crypto transactions raises risks of illicit activities, including money laundering.
3. Revenue Collection: With India's growing crypto adoption, ensuring tax compliance can generate significant revenue for the exchequer.
Impact on Crypto Traders & Investors
The proposed tax penalty could have major implications for crypto market participants:
Higher Compliance Burden: Traders must maintain accurate records of transactions to avoid penalties.
Increased Cost of Trading: Combined with the existing 30% tax and 1% TDS, the new penalties could make crypto trading less profitable.
Potential Market Slowdown: Stricter regulations might discourage retail investors and lead to lower trading volumes.
What Should Crypto Traders Do?
To stay compliant and avoid penalties, crypto traders should:
✔ Declare all crypto income in tax filings.
✔ Keep transaction records from exchanges and wallets.
✔ Consult tax professionals to understand applicable tax liabilities.
✔ Follow regulatory updates to stay ahead of any changes.
Conclusion
The proposed 60% penalty underscores the government's zero-tolerance approach toward undisclosed crypto income. With tighter regulations and higher penalties, crypto traders must ensure full compliance with tax laws to avoid hefty fines. As India moves toward a more regulated digital asset ecosystem, transparency and adherence to tax norms will be crucial for crypto investors.