India’s cryptocurrency sector is once again under regulatory focus after the Parliamentary Standing Committee on Finance rated the country’s virtual digital assets (VDA) ecosystem as ‘high risk’.
The discussion brought together senior government officials, tax authorities, intelligence agencies and representatives from major exchanges, including Binance, WazirX and ZebPay.
Officials have reportedly warned lawmakers that cryptocurrency-related activity in India is no longer just about speculation or volatile trading. Intelligence inputs have linked parts of the ecosystem to money laundering, cyber fraud, terrorist financing, drug trafficking, human trafficking, Ponzi schemes, and the cross-border movement of illegal funds.
The committee, headed by BJP MP Bhatruhari Mehtab, heard a briefing from senior officials from the Revenue Department, Ministry of Corporate Affairs and Central Board of Direct Taxes (CBDT).
The huge compliance gap is worrying
One of the biggest concerns discussed during the meeting was the widening gap between cryptocurrency trading activity and tax disclosures.
According to officials, approximately 6.45 lakh individuals were subjected to TDS deduction on cryptocurrency transactions during FY23. However, only around 1.39 million users disclosed cryptocurrency-related income while filing tax returns. The mismatch is now a major red flag for regulators and tax authorities.
Although India already imposes a 30% tax on cryptocurrency gains along with a 1% TDS rule since 2022, trading activity remains strong.
The lawmakers reportedly noted that “thousands of crores” continue to flow into digital assets, with a significant portion of it moving to offshore exchanges outside direct regulatory supervision in India.
Enforcement actions are increasing
India has also intensified enforcement of the law over the past year. The Financial Intelligence Unit of India (FIU-IND) has reportedly initiated 52 compliance actions under anti-money laundering laws, mainly targeting offshore cryptocurrency companies operating without proper registration.
Authorities have imposed penalties totaling Rs 29 lakh crore on platforms including Coinbase, Binance, KuCoin and Bybit. Officials also blocked 63 URLs and disabled access to 85 cryptocurrency-related websites and platforms for non-compliance.
Meanwhile, tax collections on cryptocurrencies have continued to rise sharply. VDA-related tax revenue is said to have risen from Rs 269 crore in FY 2023-24 to Rs 437 crore in FY 2024-25, while TDS collections increased to Rs 364.62 crore.
The government is studying global encryption models
Indian policymakers are now studying cryptocurrency regulations adopted by countries including the US, EU, Japan, Brazil and China before deciding on the next phase of regulation. Officials are also considering stricter reporting standards, tracking ownership of PAN-linked cryptocurrencies, and uniform evaluation criteria as oversight around the sector continues to tighten.
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