Centre Proposes New Tax Measures on Crypto Assets

February 25, 2025

Recently, the Government of India announced changes to the taxation of virtual digital assets (VDAs). These changes aim to curb the misuse of cryptocurrencies and enhance tax compliance. The proposed measures will classify VDAs as undisclosed income under the block assessment scheme. This scheme allows for the assessment of undisclosed income identified during tax searches.

Definition of Virtual Digital Assets

The definition of VDAs will now encompass all forms of crypto assets. This includes cryptocurrencies, non-fungible tokens (NFTs), and other digital representations of value. The definition specifically excludes gift cards and vouchers. By broadening the definition, the government seeks to capture all relevant transactions within the tax framework.

Definition of Undisclosed Income

Undisclosed income refers to income that has not been reported in an individual’s income tax return.
The Income Tax Act defines this income to include various assets. These include money, bullion, jewellery, and other valuables.
With the new proposal, VDAs will also be classified as undisclosed income. This means any earnings from VDAs that are not reported will be subject to taxation.

Block Assessment Scheme

The block assessment scheme is a method for assessing undisclosed income over a specified period. This period encompasses the six assessment years prior to the year of the search. Under this scheme, a consolidated assessment is made for the block period. The aim is to streamline tax processes and reduce litigation. Once the block assessment is initiated, no further assessments for that period can occur.

Tax Implications for Non-Disclosure

If an individual fails to disclose income from VDAs, they could face a tax rate of 60%.
In addition, a penalty of 50% may be imposed on the undisclosed income.
This high rate serves as a deterrent against non-disclosure. The government intends to ensure that all income, including from crypto transactions, is reported accurately.

Reporting Requirements for Crypto Transactions

As part of the proposed changes, entities involved in crypto transactions will be required to report these activities. This requirement aims to improve transparency in the crypto market. The new reporting obligations will come into effect on April 1, 2026. This move is part of a broader effort to regulate the cryptocurrency sector effectively.

Implications for Tax Administration

The proposed changes are expected to enhance tax administration efficiency. By including VDAs in the undisclosed income category, the government aims to increase tax compliance. The revisions are designed to reduce the scope for tax evasion in the rapidly evolving digital asset landscape.

« Previous Post Next Post »