India is monitoring crypto transactions of 700 investors – evaders could reportedly face a hefty penalty tax

India is monitoring crypto transactions of 700 investors – evaders could reportedly face a hefty penalty tax
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  • The Income Tax department has shortlisted 700 crypto transactions that haven’t been declared in IT returns, with some transactions netting over ₹40 lakh profit.
  • The Enforcement Directorate has also reportedly seized ₹135 crore, in 7 cases of money laundering using cryptocurrency.
  • The Indian government has announced a 30% tax on digital assets in the Budget this year.
Indian tax authorities have noticed a number of cases where cryptocurrency is used to evade income tax or launder money, according to reports from the Central Board of Direct Taxation (CBDT) and the Enforcement Directorate (ED) this week.

The CBDT has received a short-list of 700 people who have conducted “high-value crypto transactions,” with some reportedly having made profits of over ₹40 lakh. The ED has also seized ₹135 crore in seven cases, suspecting that laundered money from proceeds of crime could have been sent abroad using cryptocurrency exchanges.

This crackdown happens even as India’s crypto regulation is on the horizon, and the tax rates for cryptocurrency in the financial year 2022-23 was recently announced in the Union Budget. Meanwhile the crypto community has been asking the government to reduce the 30% tax on ‘virtual digital assets’, and the mandatory 1% tax deduction at source when selling cryptocurrency.

700 crypto investors under the scanner

According to officials, most of these transactions that are under the IT scanner, concern those who either did not mention crypto gains when filing tax returns, or did not file returns so far.

These 700 investors who are being investigated consist of high net-worth individuals (HNIs), non-resident Indians (NRIs) and start-ups. There are some unlikely people on it as well, such as students and housewives. Officials say the IT department is looking into the possibility that these people could have been used by others, to evade taxes themselves.


A senior CBDT official was quoted saying, “We have a long list of people who were transacting in crypto assets but were not paying tax. Initially, (we) have shortlisted about 700 transactions, where tax liability is very high.” Apart from tax as announced in the budget, tax officials have indicated that these people may suffer penalties of up to 50% in addition.

CBDT chairman, JB Mohapatra said in an interview, that the income tax department collects data on cryptocurrency investors who don’t declare their income, and that action will be initiated after March 31.

Earlier last month, the Finance Minister announced that taxpayers will be able to correct errors and file an ‘updated tax return’ for the previous two years. Until the end of March 2022, income from cryptocurrency can be shown as capital gains or as business income, and Economic Times reports that crypto gains need to be mentioned when filing taxes.

ED is probing seven crypto money laundering cases

The government has also revealed in Lok Sabha discussions on Monday, that the Enforcement Directorate (ED) is investigating seven cases of money laundering that involve cryptocurrency. As per provisions of the Prevention of Money Laundering Act (PMLA), the ED has seized assets worth approximately ₹135 crore to be proceeds of crime (PoC), and seized them.

The ED's allegation is that ‘foreign nationals and their Indian associates’ used cryptocurrency on ‘certain exchange platforms’ to turn money obtained from crimes, into ‘white’ or legitimately earned income. In one case, a person was arrested in 2020 for sending criminally obtained wealth abroad using cryptocurrency as a medium. The exchange used for such laundering was not named.

Even as governments take steps to regulate cryptocurrency, its usage for illegitimate purposes is closely tracked. A 2022 report by cryptocurrency investigator Chainalysis found that criminals had laundered cryptocurrency worth $33 billion since 2017. However, usage of a cryptocurrency like Bitcoin is more traceable than moving traditional currency notes around the world.

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