India’s Financial Intelligence Unit (FIU) is in action taking enforcement against the traders who are using peer-to-peer (P2P) platforms. According to the recent reports over the last month, many crypto traders and inventors received income tax notices against their P2P transactions on foreign exchanges.
Recently crypto traders in India faced up to 78% tax penalties for P2P transactions without buyer KYC. In 2022 the trader sold cryptocurrencies worth 98,500 via peer-to-peer (P2P) transactions and booked a ₹1,500 profit on it. The transaction was done through a centralized exchange.
Now after approximately 3 years he got a a notice from the income tax department and asked him to pay a hefty tax penalty of Rs 78,000. The issue stems from traders’ inability to provide complete KYC details of their transaction counterparties. Without information like PAN cards of P2P buyers, tax authorities are treating entire deposits as undisclosed income subject to the maximum penalty rate.
On this Koinx founder Punit Agarwal said the trader transaction was classified as an unexplained cash credit and that he faced this massive tax penalty. As per the new Income Tax Act amendments, on the undisclosed income, there was a 70% tax penalty. The amendment was introduced under Section 158B of the Income Tax Act by Finance Minister Nirmala Sitharaman in the 2025 budget.
The tax experts advised the Indian crypto traders to maintain a detailed record of all the crypto transactions, including the KYC details of the counterparties. This is the only possible way to protect themselves from these hefty penalties in the future.
