India Increases Crypto Tax Enforcement Using AI and International Data Sharing
To combat cryptocurrency tax evasion, India’s tax authorities are using artificial intelligence and international data-sharing agreements. They have warned that transactions involving digital assets can no longer be concealed in the murky world of international finance.
In an interview with the Economic Times, Chairman Ravi Agrawal disclosed that the Central Board of Direct Taxes (CBDT) is stepping up its efforts to catch cryptocurrency tax evaders by using improved data analytics and cross-border information sharing.
According to Agrawal, the department currently has access to more than 6.5 billion domestic digital transactions and is actively involved in the Crypto-Asset Reporting Framework (CARF) to guarantee that tax-related data on crypto assets is automatically shared between nations.
The Organization for Economic Co-operation and Development (OECD) established the CARF global standard, which requires crypto platforms to gather and provide tax authorities with user transaction data. This allows for automated cross-border trade in an effort to prevent tax avoidance.
“The objective is to align the nations by placing cryptocurrency transactions under international tax agreements,” KoinBX founder and CEO Saravanan Pandian told Decrypt.
Pandian stated that the exchange will “wait and watch what measures the government brings in,” adding that it could be too soon to speculate on how this decision might affect cryptocurrency exchanges.
Artificial intelligence is being used by India’s Income Tax Department to compare individual income tax returns (ITRs) with tax deducted at source (TDS) data provided by cryptocurrency exchanges. When there are differences greater than $1,200 (₹1 lakh), letters are sent out.
According to Agrawal, the authority to access digital data is “strictly applicable only during search and survey operations” and is not intended to violate “taxpayer privacy.”
“As financial activities move online through digital banking, cryptocurrency, and cloud storage, the examination of digital evidence is an integral part of an investigation,” he stated.
In an industry that has always struggled with anonymity, India is getting ready for a time when wallet visibility and automated data exchange will be commonplace. Decrypt was informed by Sonu Jain, 9Point Capital’s chief risk and compliance officer.
“Strikes a balance between enforcement and user privacy,” Jain continued, clarifying that “wallet-level access or access to crypto accounts of taxpayers” is only allowed during search or survey activities, like an income tax raid.
India’s crypto tax regime overhaul
The crackdown comes after India redesigned its crypto tax system in 2022, imposing a 1% TDS on transactions over a certain level and a flat 30% tax on all cryptocurrency revenues.
Since implementing the crypto tax rate in 2022–2023 the Indian government has collected $818 million (₹700 crore), of which $323 million (₹269.09 crore) was collected in the first year and $525 million (₹437.43 crore) in 2023–2024.
In a written response to members of the Lok Sabha on Monday, Minister of State (MoS) for Finance Pankaj Chaudhary stated that the government “uses data analytics tools to trace and detect tax evasion from VDA related transactions.”
nevertheless, “Real-time matching of Virtual Digital Asset (VDA) related transactions, filed in ITRs, with information filed by VASPs is not being carried out,” Chaudhary said.