India's tax authorities have uncovered a wide gulf between actual cryptocurrency trading activity and the amount of it disclosed on official tax returns, according to a new report. Of roughly 645,000 people who conducted crypto transactions, fewer than a quarter reported those dealings to the tax department.
A Glaring Compliance Gap
The finding points to what officials view as systemic underreporting across India's digital asset sector. Despite the country enforcing one of the tougher tax regimes for virtual assets among large economies, the majority of traders appear to be skipping their disclosure obligations entirely.
The scale of the shortfall suggests that the bulk of trading activity is happening off the books, at least as far as tax filings are concerned. That leaves authorities with limited visibility into a market they have long approached with caution.
Fewer than one in four of the estimated 645,000 people who traded crypto reported those transactions on their tax filings.
How India Taxes Virtual Assets
India rolled out its current framework for virtual digital assets to bring more transparency and oversight to a sector that has drawn skepticism from regulators. The rules were meant to create a traceable record of crypto activity and to discourage the kind of undisclosed trading now coming to light.
The system leans on two main pillars:
- A flat tax rate on gains from virtual digital assets
- A tax deducted at source (TDS) on transactions, intended to help track trading flows
Even with these tools in place, the mismatch between reported and actual trading shows that enforcement and voluntary compliance are still falling short of expectations.
Fresh Fuel for Tighter Rules
The disclosures are likely to intensify scrutiny of the crypto industry in a country where policymakers have kept digital assets at arm's length. Evidence of widespread underreporting gives regulators a stronger case for pushing tighter controls.
The revelations could also reopen debate over India's overall stance on cryptocurrency, including louder calls from some officials for stricter oversight or even outright restrictions. With reported activity trailing so far behind actual trading, both individual traders and exchanges may face growing pressure to fall in line with tax requirements in the months ahead.