Financial authorities in India have reiterated their concerns regarding cryptocurrency transactions, partic…

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Financial authorities in India have reiterated their concerns regarding cryptocurrency transactions, particularly focusing on how these assets could complicate tax enforcement. During a Wednesday parliamentary committee meeting, the Income Tax Department (ITD), which operates under the Central Board of Direct Taxes (CBDT), flagged what it described as major risks linked to crypto activity. This warning was presented to a parliamentary committee on finance as part of a broader review of the digital asset landscape in the country.

The meeting involved a multi-agency approach to assessing the impact of digital currencies. Participants included the Financial Intelligence Unit (FIU), the Department of Revenue, and the CBDT. The discussions were centered on the challenges of maintaining financial oversight in an era of decentralized and digital value transfers. The ITD emphasized that the current nature of crypto transactions presents significant hurdles for regulators attempting to ensure full compliance with the nation’s tax laws.

By highlighting these risks in a high-level government forum, the financial authorities have underscored the perceived threat that unregulated or difficult-to-track digital assets pose to the existing revenue collection system. The involvement of multiple enforcement and intelligence agencies indicates a coordinated effort to address the complexities of the cryptocurrency market. This reiterated stance reflects the government’s ongoing struggle to reconcile the rapid growth of the crypto sector with the need for transparent and enforceable financial regulations.

Context

India formally allows the trading of cryptocurrencies, but it has implemented a heavy tax regime that governs all market participants. Under current regulations, the country levies a flat 30% tax on all gains generated from crypto asset activity. Furthermore, a 1% tax deducted at source (TDS) is applied to all transfers of digital assets. This TDS applies regardless of whether the transaction is profitable or results in a loss, ensuring that the government maintains a consistent revenue stream from the movement of these assets.

Despite these significant financial hurdles, the Indian crypto ecosystem is showing signs of growth and institutional interest. In the fiscal year 2024–2025, the Financial Intelligence Unit (FIU) approved a total of 49 crypto exchanges to operate within the country. Additionally, the government has approved the return of major international platforms, including the prominent US-based exchange Coinbase, which is slated to return in 2025.

This environment creates a dual reality for the industry. On one hand, the government provides a legal pathway for crypto trading and allows the entry of major global players. On the other hand, it maintains some of the most stringent tax policies in the world for digital assets. This approach suggests that while the state recognizes the permanence of the crypto market, it remains committed to using fiscal tools to monitor activity and discourage speculative or untraceable financial behavior.

Impact

The Income Tax Department has specifically highlighted several technical and structural challenges that make cryptocurrency transactions difficult to manage. According to the ITD, tools such as offshore exchanges, private wallets, and decentralized finance (DeFi) protocols significantly complicate the task of detecting taxable income. Because these technologies allow for value transfers that are anonymous, borderless, and nearly instant, they often function without the involvement of regulated financial intermediaries that would typically provide data to tax authorities.

The jurisdictional complexity of crypto assets also presents a major barrier to enforcement. When transactions involve multiple international jurisdictions or offshore entities, the ITD has noted that tracking transactions and identifying the actual holders of assets for tax purposes becomes virtually impossible. The borderless nature of these digital assets allows funds to move across the globe with ease, often leaving a trail that is difficult for a single national authority to reconstruct or assess accurately.

Furthermore, the impact of India’s current tax framework is felt heavily by individual participants. One of the most significant points of friction is that losses on crypto transactions are not recognized by the tax authorities. This means that investors cannot use their losses to offset gains, leading to a system that many in the industry believe prioritizes revenue collection over fairness. These factors combined—the difficulty of oversight and the rigid tax rules—create a challenging landscape for those operating within the Indian digital asset space.

Outlook

The overall stance of the Indian government toward the cryptocurrency sector remains cautious and mixed. While the approval of 49 crypto exchanges by the FIU and the planned return of Coinbase in 2025 indicate a level of market expansion, the underlying regulatory sentiment is one of wariness. Financial authorities continue to prioritize the risks associated with tax evasion and the potential for digital assets to bypass established financial controls.

Currently, India’s crypto ecosystem is considered to be at a pivotal stage. Adoption of digital assets is rising among the population, yet the regulatory framework remains centered on high-friction tax policies. The government’s continued focus on the challenges posed by DeFi and private wallets suggests that future regulations may target these specific areas to bring them further into the regulatory fold.

The coming years will likely see a continued debate over the balance between innovation and regulation. While the formal allowance of trading provides a legal basis for the industry, the lack of recognition for transaction losses and the high flat tax rate remain significant obstacles for the sector’s long-term integration into the broader economy. Until the jurisdictional and technical challenges identified by authorities are addressed, the environment for cryptocurrency in India is expected to remain one of strict oversight and high fiscal barriers.