Thousands get tax notices over crypto, digital asset investments

Unaccounted incomes invested by individuals and entities are under government’s active scanner with the Central Bureau of Direct Taxes issuing notices to thousands to declare undeclared assets.

Top government sources said the apex tax body is investigating tax evasion and laundering of unaccounted income by high-risk persons through investment in cryptocurrency.

“Such entities and individuals that are engaged in virtual digital asset (VDA) transactions and have failed to comply with the Income Tax Act, 1961, have been identified for verification,” CBDT officials said.

Government data analytics units have revealed that a significant number of persons have violated provisions of the Act by not filing Schedule VDA of income tax returns and offering tax on the income earned at lower rate or claiming cost indexation.

“ITRs filed by taxpayers are being verified with TDS returns filed by the virtual asset service providers (VASPs), popularly known as crypto exchanges, and defaulters may be selected for further verification or scrutiny,” sources said.

It is learnt from sources that the CBDT has sent emails to thousands of defaulting persons to review their ITR and update if any income on account of VDA transactions has not been properly declared.

Section 115BBH of the Act inserted by the Finance Act, 2022, prescribes flat tax rate of 30% (plus applicable surcharge and cess) on income from VDA transfer. The provision does not allow deduction of any expenses except cost of acquisition.

Further, set-off of loss from VDA investment or trading is not allowed against any other income nor can it be carried forward to subsequent years.

The CBDT had recently adopted a new approach — NUDGE (Non-intrusive Usage of Data to Guide and Enable) Taxpayers — as part of Finance Ministry’s “Trust the taxpayers first philosophy”. This is seen as the third NUDGE campaign launched by the CBDT in the past six months. Earlier campaigns were on declaration of foreign assets/income by taxpayers and withdrawal of bogus claims of deduction under Section 80GGC.

Section 80GGC of the Income Tax Act provides for tax deductions with respect to donations made by taxpayers towards political parties or any electoral trusts.

It was introduced to bring about transparency in electoral funding and rid such transactions of corruption.

India