Cryptocurrency continues to be a hot topic in India as the country’s tax authorities join forces with the Reserve Bank of India (RBI) to address concerns surrounding virtual digital assets. Ahead of the Union Budget presentation, the Income Tax Department raised significant enforcement issues tied to the fast-growing crypto market.
Key Concerns About Cryptocurrency in India
On Wednesday, India’s tax authorities presented their concerns regarding cryptocurrencies during a parliamentary finance committee meeting, as reported by the Times of India. They outlined several challenges, including:
- Anonymous Transactions: Cryptocurrencies’ pseudonymous nature makes it difficult to track taxable income effectively.
- Jurisdictional Challenges: Cross-border activity involving offshore exchanges falls outside India’s enforcement reach, creating major compliance gaps.
- Lack of Regulation: Decentralized systems and unregistered exchanges create vulnerabilities for financial crimes like money laundering.
As Finance Minister Nirmala Sitharaman prepares to present the Union Budget for 2026-27, policymakers are grappling with the dual challenge of leveraging emerging blockchain technologies while protecting the financial system from potential risks.
Regulatory Measures Under Debate
Currently, crypto traders in India are subject to a 30% flat tax on gains and 1% Tax Deducted at Source (TDS) for every transaction. Tax authorities flagged additional regulatory proposals, including leveraging AI systems and global data-sharing to monitor activity, cross-match data from exchanges, and issue notices for tax discrepancies over ₹1 lakh (~$1,200).
Moreover, recent laws enable retrospective audits and penalties of up to 70% for undisclosed crypto earnings under Section 158B of the Income Tax Act.
The RBI’s Stand on Cryptocurrencies
The Reserve Bank of India has openly championed its own “RBI-guaranteed” digital currency while scrutinizing privately issued cryptocurrency. Union Minister Piyush Goyal stated earlier that heavy taxation reflects the government’s intention of discouraging users from investing in unbacked digital assets.
However, industry experts like Raj Kapoor, CEO of the India Blockchain Alliance, caution that excessive taxation without a defined market framework risks stifling innovation and driving talent offshore. “This approach may lead to a scenario where India becomes a crypto consumer rather than a global rule-setter,” Kapoor explained.
A Smoother Path Ahead?
As India’s government intensifies its scrutiny of cryptocurrency, investors and innovators are urging for a clearer regulatory framework. A balanced approach that offers investor protection while fostering blockchain innovation could establish India as a leader in the Web3 ecosystem.
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Stay tuned for updates as we follow the regulatory trajectory of cryptocurrencies in India and their impact on the global market scene.
