Crypto Income Under Scrutiny: What the New Tax Manual Means for You
The focus keyphrase “crypto income under scrutiny” is again making headlines in India. A revised income tax manual, as per a report shared by CA Bimal Jain, is now arming tax officers with clearer tools to trace unreported crypto earnings and tax defaulters. This comes in the wake of the 2022 Budget’s 30% flat tax on gains from Virtual Digital Assets (VDAs), which includes crypto, NFTs, and similar instruments.
The move signals India’s intent to tighten its grip on the fast-moving digital asset market — especially given that crypto transactions reportedly crossed $3.8 billion in 2024, according to data from the Ministry of Finance.
Let’s break down what this revised tax manual means for investors, traders, and consultants.
What’s Changed in the New Tax Manual?
The Central Board of Direct Taxes (CBDT) has not publicly released the manual, but credible sources suggest:
- Clearer audit guidance to trace crypto-related income under Section 68 (unexplained credits) and Section 69A (unexplained money).
- Digital trail mapping integrated with crypto exchange data, PAN-Aadhaar linkage, and FIU reporting.
- Focus on TDS non-compliance under Section 194S (1% TDS on VDA transfers).
- Emphasis on not allowing set-off of crypto losses — consistent with Finance Act, 2022.
These clarifications strengthen earlier positions but now give IT officers a rulebook-ready structure to question unexplained digital wealth.
Key Legal Provisions You Should Know
| Law / Section | What It Covers |
|---|---|
| Section 115BBH (Income Tax Act) | 30% tax on crypto/VDA gains, no deduction except cost |
| Section 194S | 1% TDS on transfer of VDAs (from 1 July 2022) |
| Section 68/69A | Income from unexplained sources – crypto flagged here |
| Section 139(1) | Filing requirement if income > basic exemption limit |
➡️ CBDT Notification No. 74/2022, dated 30.06.2022, clarified PAN-Aadhaar linking and VDA tax deduction responsibilities.
Global Context: India’s Crypto Tax Rules Are Stricter
India’s policy is in line with global tax norms — but tougher in some areas:
| Country | Crypto Tax Rate | Loss Set-off Allowed? | Deduction Allowed? |
|---|---|---|---|
| India | 30% | ❌ No | ❌ Only cost of acquisition |
| USA | Based on income slab | ✅ Yes | ✅ Yes |
| UK | 10%–20% | ✅ Yes | ✅ Yes |
| Germany | 0% (after 1-year hold) | ✅ Yes | ✅ Yes |
A 2023 OECD report stated that 88% of G20 countries now tax crypto, but few impose restrictions as rigid as India’s.
Expert View: Why This Matters Now
According to CA Bimal Jain, “The manual empowers authorities to treat unreported crypto holdings like black money. This raises the bar for documentation and audit readiness.” With FIU-India already monitoring exchanges, and crypto-TDS kicking in, the gap is narrowing for casual investors who earlier believed crypto income could be “invisible.”
Compliance Tips for Crypto Investors
To avoid tax scrutiny:
- Report all gains from crypto trades in ITR under Schedule VDA
- Deduct 1% TDS on P2P or over-the-counter trades if you’re liable
- Keep digital records: transaction IDs, wallet addresses, and exchange slips
- Don’t assume foreign wallets or DeFi trades are outside the tax net — global sharing of info under CRS is active
- Declare holdings even if you made losses — for transparency
Hidden Risk: Mismatch in TDS and ITR
CBDT systems now auto-compare TDS deducted under Section 194S with crypto-related disclosures in ITRs. A mismatch may trigger automated notices under Section 133C or 143(1)(a). This makes accurate filing non-negotiable.
FAQs on Crypto Taxation and Audit
Q1. Is it mandatory to report crypto income even if losses occurred?
Yes. Reporting is mandatory for transparency. However, losses can’t be set off or carried forward as per Section 115BBH(2).
Q2. Will IT officers ask for wallet-level data?
Yes. If selected for scrutiny, you may be asked for transaction history, wallet keys, or source of crypto funds — similar to cash or stock holdings.
Q3. Does the 1% TDS apply to foreign exchanges?
Yes, if the transaction is routed through an Indian payment system or if the payer is based in India.
Final Word
The message is clear: crypto income is under scrutiny, and the IT Department is now better equipped to act. Investors should take proactive steps to ensure clean books, clear reporting, and timely TDS deduction. The days of anonymous trading are over.
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Summary
Crypto income is under scrutiny with a revised income tax manual empowering IT officers to track unreported gains. From TDS mismatches to wallet-level audits, India is tightening its grip. Learn what’s changed, legal rules, and how to stay compliant.