India’s tax department has raised concerns over how cryptocurrency transactions could complicate tax enforcement.

During a parliamentary committee meeting held on Jan. 7, India’s Income Tax Department (ITD), under the Central Board of Direct Taxes (CBDT), warned of the growing risks linked to crypto activity, according to a Times of India report.

The committee meeting, attended by multiple agencies such as the Financial Intelligence Unit (FIU), the Department of Revenue, and the CBDT, discussed the findings of a report titled “A Study on Virtual Digital Assets (VDAs) and Way Forward.”

According to the ITD, cryptocurrencies present several challenges that make monitoring and enforcement difficult, especially with the involvement of offshore exchanges, private wallets, and decentralised finance tools.

Officials noted that the ability to transfer funds anonymously, across borders, and in near real time makes it difficult for tax authorities to track the flow of money and identify beneficiaries.

Many of these transactions often take place on overseas exchanges or decentralised platforms that are not registered with Indian authorities like the FIU. 

With multiple jurisdictions involved, tracking transactions and identifying holders for tax purposes is “virtually impossible,” the department said.

“Although there have been efforts in recent months on information sharing, it remains difficult, inhibiting the ability of tax officials to undertake proper assessment and reconstruction of transaction chains,” an excerpt from the report noted.

The Indian crypto market, despite being one of the most active globally, has long struggled to find stability due to a lack of regulatory clarity and a stringent capital gains tax regime.

Indian crypto investors are subject to a flat 30% tax on all income from virtual digital assets, along with a 1% tax deducted at source levied on all transactions, regardless of profitability.

Even though crypto trading has been made legal under this framework, lawmakers and government agencies have been relatively quiet in pushing forward formal legislation, apart from the occasional warning and reiteration of their cautious stance.

Meanwhile, the FIU has continued to push both domestic and offshore exchanges to comply with the country’s anti-money laundering laws, approving 49 platforms in fiscal year 2024–2025.

The past year also saw several multi-million dollar penalties imposed on exchanges that operated without registration or failed to meet KYC and transaction reporting obligations.

For the time being, the crypto market in India continues to operate within a regulatory limbo.

A much-anticipated discussion paper was initially scheduled for release in September 2024 but has been delayed multiple times since then, with no confirmed publication as of January 2026.

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