Indian crypto holders face up to 70% tax penalty on gains

Indian cryptocurrency traders are facing substantial tax penalties on previously undisclosed profits following new amendments to the Income Tax Act.

Under Section 158B, cryptocurrencies will now be treated similarly to traditional assets, subjecting them to block assessments if not reported.

Finance Minister Nirmala Sitharaman announced these changes in the Union Budget 2025, indicating that cryptocurrencies will fall under the category of Virtual Digital Assets (VDAs).

The new regulations will be retroactively applicable from February 1, 2025, requiring crypto holders to disclose their gains or face penalties of up to 70% on undisclosed profits.

This penalty applies to profits that remain unreported for up to 48 months after the relevant tax assessment year.

The amendment comes in light of findings by the Indian government regarding unpaid taxes from several crypto exchanges, totaling approximately ₹824 crore ($97 million) in unpaid goods and service taxes.

As part of the enforcement efforts, Indian authorities have previously demanded ₹722 crore ($85 million) in unpaid taxes from Binance.

The new tax framework aims to enhance compliance and transparency within the rapidly growing crypto market in India.

With the implementation of these regulations, cryptocurrency gains will be taxed at a flat rate of 30%, plus applicable surcharges and a 4% cess.

Additionally, a 1% Tax Deducted at Source (TDS) will apply to transactions exceeding ₹50,000 (or ₹10,000 in certain cases).  

This move aligns with global trends as countries increasingly adopt stringent tax regulations for digital assets.

In the U.S., for instance, new IRS regulations set to take effect in 2025 will require centralised exchanges to report crypto transactions, further pushing investors towards decentralised platforms.