India Flags Crypto Risks, Cites Tax Enforcement Challenges

TheNewsCryptoPublished on 2026-01-08Last updated on 2026-01-08

Abstract

Indian financial authorities have reiterated significant concerns regarding cryptocurrency transactions, emphasizing the challenges they pose to tax enforcement. The Income Tax Department highlighted these risks during a parliamentary committee meeting, pointing to difficulties in tracking taxable income due to the use of offshore exchanges, private wallets, and decentralized finance tools. The anonymous, borderless, and near-instant nature of crypto transfers further complicates oversight by allowing funds to move without regulated intermediaries. Jurisdictional issues with offshore virtual digital asset activities make it nearly impossible to track transactions and identify holders for tax purposes. Despite a 30% tax on crypto profits and a 1% TDS on all transfers, enforcement remains a challenge. While India permits crypto trading under this tax regime and has seen growing adoption, officials maintain a cautious stance, noting that the current framework presents obstacles, such as the non-recognition of transaction losses.

The financial authorities from India have restated concerns over crypto transactions and mentioned that they may muddle tax enforcement. The Income Tax Department of India has highlighted major risks associated with crypto activity at the time of a parliamentary standing committee on finance.

On January 7, in a parliamentary committee meeting with various agencies such as the Financial Intelligence Unit, the Department of Revenue, and the CBDT, the report named A Study on Virtual Digital Assets and the Way Forward was discussed, in which the alert associated with cryptocurrencies was made.

The Tax Department mentioned challenges associated with offshore exchanges, private wallets and decentralised finance tools, which make locating taxable income more difficult. In the meeting, the department also highlighted that anonymous, borderless and near-instant value transfers with crypto could permit one to shift funds without regulated financial intermediaries.

Unidentified Crypto Transactions

The authority also highlighted the jurisdictional challenges shown by offshore VDA activity. With various jurisdictions involved, tracking transactions and recognising holders for tax purposes is virtually not possible.

The report also highlighted that, however, there have been efforts in the past few months on information sharing; it becomes difficult, scraping the capability of tax officials to undertake proper assessment and reconstruction of transaction chains.

India imposes around a 30% tax on all profits from crypto asset activity, together with a 1% tax cut at source applied to all transfers, whether profitable or not. India officially permits cryptocurrency trading under this heavy tax regime and accepted the return of major US exchange Coinbase last year, and the complete stance of the government towards crypto remains cautious.

Local officials have so far mentioned that the crypto ecosystem of India is at a crucial stage, having adoption surging and the FIU approving 49 crypto exchanges in fiscal year 2024-25. The co-founder of CoinSwitch, Ashish Singhal, mentioned that the current tax framework makes challenges, as losses on crypto transactions are not identified.

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