India Flags Crypto as High-Risk Channel for Tax Evasion & Laundering

Crypto Emerging as Major Vehicle for Tax Evasion & Laundering, Parliament Told

The Ministry of Finance has informed the Lok Sabha that India still lacks a specific regulatory framework for cryptocurrencies and other Virtual Digital Assets, even though the sector has grown large enough to influence national financial compliance patterns. Officials noted that VDAs are inherently borderless, making it difficult for any single jurisdiction to control abuse without coordinated global mechanisms.

Despite imposing a 1% TDS on transfers and a 30% tax on profits, the government does not yet collect granular, activity-level data on crypto exchanges or Indian users. Industry estimates suggest India’s crypto trade volumes have now crossed USD 15 billion.

Enforcement Agencies Uncover Massive Undeclared VDA Income

Authorities have intensified oversight as instances of crypto-linked tax evasion continue to rise. Under ongoing surveillance campaigns, the Central Board of Direct Taxes detected more than ₹888 crore in undisclosed income tied to digital assets. Over 44,000 notices were sent to users who failed to report their VDA activity in income-tax filings.

Using data-analytics engines like Project Insight, investigators matched blockchain-linked patterns with taxpayer disclosures, marking a shift toward forensic monitoring of digital transactions.

The Enforcement Directorate has expanded this effort under the Prevention of Money Laundering Act, recovering or freezing nearly ₹4,190 crore in suspected crime proceeds. Twenty-nine individuals have been arrested, and 22 prosecution complaints filed. Several other laws — including the Benami Act and Black Money Act — are being used to target offshore or concealed VDA holdings.

National TDS Data Shows Disparities in Crypto Participation

Newly released TDS figures show how crypto adoption varies across India. Maharashtra alone contributed ₹660 crore across three years, followed by Karnataka and Gujarat. In contrast, many northeastern and hill-state regions reported negligible activity.

Regulators also confirmed that three major exchanges failed to adhere to TDS rules, resulting in more than ₹39 crore in short-deducted tax and over ₹125 crore in unaccounted income. Multiple survey and search actions have been triggered under the Income Tax Act.

Crypto’s Laundering Potential Prompts Push for International Rules

Even with domestic controls in place, officials warned that crypto continues to be exploited for cross-border laundering due to its decentralized and anonymity-friendly architecture.

To contain these risks, India has brought both domestic and offshore exchanges serving Indian users under mandatory PMLA reporting. Suspicious transactions must now be flagged to FIU-IND.

Training programs in blockchain forensics, digital-trail reconstruction and global compliance frameworks are being rolled out for tax and enforcement teams, including through advanced modules at NFSU Goa.

As Parliament weighs a dedicated crypto law, the government has acknowledged that India’s challenge is not merely regulatory but geopolitical — requiring shared standards, reciprocal reporting systems and international alignment to close loopholes exploited by bad actors.

As digital assets create new financial complexities, precise record-keeping is more critical than ever. Transparent bookkeeping helps individuals and organisations stay compliant, avoid penalties, and maintain a clean audit trail in an evolving regulatory landscape.

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