Crypto investments under scanner: CBDT launches probe into unaccounted income; high-risk investors in VDA may face scrutiny

The Central Board of Direct Taxes (CBDT) has launched a probe into possible tax evasion and laundering of unaccounted income through investments in virtual digital assets (VDAs), including high-risk VDA transactions and cryptocurrencies, sources in the government said on Thursday.The tax authority is currently verifying individuals and entities engaged in high-risk VDA transactions who appear to have failed to comply with key provisions of the Income Tax Act, 1961, PTI reported. These include non-disclosure of digital asset income and incorrect tax filings, according to officials familiar with the matter.Under Section 115BBH of the Income Tax Act, introduced in the Finance Act, 2022, income from the transfer of VDAs is taxed at a flat rate of 30%, plus applicable surcharge and cess. The law prohibits deduction of any expenses except for the cost of acquisition and also disallows the set-off or carry-forward of losses from VDA transactions.Government data analytics has revealed widespread non-compliance, with a significant number of taxpayers either failing to report digital asset gains in the designated Schedule VDA of their income tax returns (ITR), or paying tax at lower rates while incorrectly claiming benefits such as cost indexation.CBDT has matched ITR filings with TDS data submitted by Virtual Asset Service Providers (VASPs), commonly known as crypto exchanges, and discrepancies have triggered a wider scrutiny, officials said. Taxpayers found defaulting could be subject to further verification or scrutiny under the law.In recent weeks, the board has sent emails to thousands of individuals identified as high-risk defaulters, urging them to review and, if necessary, update their ITRs to accurately reflect income from VDA transactions.The development comes under the CBDT’s ongoing push to promote voluntary compliance through its “NUDGE” framework — short for Non-intrusive Usage of Data to Guide and Enable taxpayers — under its “Trust Taxpayers First” philosophy.This is the third NUDGE campaign initiated by the department in the past six months, following previous efforts focused on foreign asset disclosures and withdrawal of ineligible deductions claimed under section 80GGC.

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