What’s the news? The Government has admitted that no real-time system exists to match tax returns with transaction data filed by cryptocurrency exchanges, and nor has it estimated how much revenue may be lost due to under-reporting of cryptocurrency transactions.
This development comes even as the Centre revealed that it collected over Rs 700 crore in taxes from cryptocurrency income in the 2022-23 and 2023-24 financial years.
Minister of State (MoS) for Finance Pankaj Chaudhary revealed this in a written reply in the Lok Sabha on July 21, 2025, to a question by Telugu Desam Party (TDP) Members of Parliament (MPs) Lavu Sri Krishna Devarayalu and G M Harish Balayogi.
The MPs had specifically asked:
(a) The total year-wise revenue collected from income tax on Virtual Digital Assets (VDAs)/Cryptocurrency related income during the last three years.
(b) Whether any estimates have been made by the Government regarding the projected revenue loss due to under-reporting/misreporting of income from VDA/cryptocurrency transactions.
(c) Whether the Government is using AI/Machine Learning (ML)/data analytics tools to identify tax evasion in VDA transactions. And if so, its details.
(d) Whether a centralised system has been established by the Government for real-time matching of VDA-related Income Tax Return (ITR) filings with Tax Deducted at Source (TDS) returns filed by Virtual Asset Service Providers (VASPs). And if so, the status of its implementation.
(e) Whether the Government has undertaken any capacity-building initiatives to equip tax officials for effective compliance monitoring and investigation in the VDA/cryptocurrency ecosystem. If so, its details, and if not, the reasons for it.
Tax Collection Started Only in FY 2022-23
In reply, the minister said the tax on crypto income under Section 115BBH of the Income Tax Act, 1961, came into effect only in 2022-23. Since then, the government has collected Rs 269.09 crore in 2022–23 and Rs 437.43 crore in 2023–24. Data for FY 2024–25 is still awaited.
No Real-Time Monitoring System For Crypto Transactions
Responding to whether a centralised matching system is in place to track crypto income disclosures in real time, the Government clarified:”Real time matching of Virtual Digital Asset (VDA) related transactions, filed in ITRs, with information filed by VASPs is not being carried out.”
Instead, the government relies on post-facto analysis using systems like the Non-Filer Monitoring System (NMS), internal IT databases, and Project Insight – which is an initiative to improve tax compliance. These tools help in flagging any mismatch by comparing available information with what taxpayers actually report within their respective ITRs.
To address these gaps, the Central Board of Direct Taxes (CBDT) launched a Non-Intrusive use of Data to Guide and Enable (NUDGE) campaign and directly communicated with taxpayers who failed to report VDA-related transactions despite TDS being deducted for them.
“Suitable communications, to review and update their income tax returns, were issued to all taxpayers who did not report VDA related transactions in their income tax returns, despite tax being deducted at source for such transactions by VASPs, where the quantum of such discrepancy was more than Rs 1 lakh,” Chaudhary’s reply said.
However, because officials act only after VASPs file TDS returns, they respond reactively rather than preventively, which makes the system vulnerable to potential leakages.
No Estimate of Misreporting Of Transactions
The MoS for Finance admitted that the Ministry has made no estimate of the potential revenue loss caused by under-reporting or misreporting of crypto transactions. This is significant amid global concerns that cryptocurrencies could be misused for tax evasion and money laundering.
Notably, this disclosure from the Finance Ministry comes just a day after CoinDCX revealed it had suffered a security breach resulting in losses of approximately Rs 368 crore. The announcement has reignited concerns about the safety of users’ assets on digital platforms. Meanwhile, WazirX, another major Indian crypto exchange, was hit by a massive cyberattack last year in which hackers allegedly siphoned off more than $230 million worth of users’ funds. These incidents underscore the urgent need for both tighter regulatory oversight and robust cybersecurity frameworks in India’s crypto ecosystem.
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Training Is Ongoing — But is it Enough?
The ministry said several steps have been taken to train tax officers to tackle the complex world of cryptocurrency assets. “Training programs, specialised workshops, Chintan Shivirs (deliberation camps) and hands-on workshops are regularly conducted… Officers and officials are also imparted short term training on digital forensics, in partnership with National Forensic Science University (NFSU), Goa,” Chaudhary stated. Elsewhere, workshops also focus on blockchain analysis, legal frameworks, and the handling of digital evidence.
However, with rapidly evolving crypto tools and techniques, the effectiveness of these training programmes with respect to global best practices and compliance standards remains questionable.
Elsewhere, questions around regulation and enforcement persist beyond tax compliance. Even as the Government tightens post-facto scrutiny of domestic cryptocurrency transactions, concerns linger around the growing use of offshore cryptocurrency platforms by Indian users. For context, these platforms often fall outside the domestic regulatory purview, raising risks related to money laundering, tax evasion, and investor protection.
Crackdown on Illegal Offshore Platforms Still Evolving
A December 2024 report by the Esya Centre, a New Delhi-based technology policy think tank, flagged the scale of this offshore activity. It found that between December 2023 and October 2024 alone, Indian users transacted over Rs 2.63 lakh crore on offshore crypto platforms, transactions that should have generated about Rs 2,634 crore in TDS under Indian law. The report estimated that uncollected TDS from such platforms since July 2022 could already exceed Rs 6,000 crore, and over the next five years this figure may rise above Rs 17,000 crore if regulatory enforcement remains weak.
In a separate response tabled in Parliament the same day, the government clarified that crypto assets remain unregulated in India, and therefore, questions of legality or illegality of specific offshore platforms do not arise at present.
However, the Centre requires offshore and domestic crypto platforms catering to Indian users to register with the Financial Intelligence Unit (FIU-IND) under the Prevention of Money Laundering Act (PMLA) to address money laundering and terrorism financing risks. Notably, the FIU maintains a dynamic list of unregistered platforms.
Additionally, a 1% TDS under Section 194S of the IT Act applies to all transfers of VDAs, including those involving offshore platforms, if the income is taxable in India. The RBI, too, has issued repeated advisories warning users about the legal and financial risks of engaging with cryptocurrency entities.
While the Government has made strides in post-facto compliance and awareness campaigns, the lack of real-time systems and regulatory clarity continues to leave loopholes in India’s cryptocurrency oversight.
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