Income Tax Department Issues Various Notices for Non-Disclosure of Crypto Transactions

In accordance with the Central Board of Direct Taxes (CBDT), the Income Tax Department has issued tax notices to numerous taxpayers for not considering and paying tax on cryptocurrency transactions.

Amendments were introduced in the Income Tax Act, 1961, by the government in 2022 to recommend 30% of tax along with applicable surcharge and cess on incomes generated from cryptocurrencies or crypto assets, meaning due to the transfer of virtual digital assets (VDAs). The rule didn’t allow taxpayers to reduce their profits by subtracting any losses. It also didn’t let them claim any expenses as deductions, except for what they spent to buy the asset.

The Central Board of Direct Taxes (CBDT) is doing inspections to see if individuals are hiding their real income or performing money laundering by investing in cryptocurrency. These individuals or businesses are involved in virtual digital asset (VDA) transactions but have not obeyed the rules of the Income Tax Act, 1961. The department has now discovered such cases and will further run investigations on them.

According to the sources, the Central Board of Direct Taxes (CBDT) has said, “CBDT has recently sent emails to thousands of defaulting persons to review their income tax returns and update if any income on account of VDA transactions has not been properly declared.”

It has been discovered by the Income Tax Department, through data analysis, that by not submitting the relevant VDA-associated schedule in their ITRs and by paying taxes lower than actually required as per their earned income or claiming cost indexation, a significant number of individuals have disobeyed the provisions of the Income Tax Act.

These notices related to cryptocurrency are being sent to individuals considering it as a constituent of the new approach adopted by the CBDT under its Non-intrusive Usage of Data to Guide and Enable Taxpayers (NUDGE Taxpayers) program. Earlier efforts to send reminders were made for things like asking taxpayers to declare their foreign assets or income and to take back any false claims made for deductions under Section 80GGC.