India is tightening its grip on cryptocurrency taxation with a bold new policy that imposes a massive 70% penalty on undeclared crypto gains. Starting from February 2025, the Indian government will retroactively apply these penalties on unreported profits from the last 48 months. The move signals a significant shift in the country’s stance toward digital assets, aiming for greater transparency and compliance in the crypto market.
Key Points to Know About India’s New Crypto Tax Penalty:
- 70% Tax Penalty on Undeclared Gains:
India’s Finance Minister Nirmala Sitharaman revealed in the 2025 federal budget that the government will introduce a 70% tax penalty on all undeclared cryptocurrency profits. This policy will affect both individual investors and organizations involved in crypto transactions. The legislation applies retroactively from February 1, 2025, targeting all undisclosed crypto gains accumulated in the past four years. - Mandatory Compliance for Crypto Holders:
The new tax legislation requires crypto holders to report their unreported gains just like traditional assets such as currency, gold, and jewelry. Section 158B of the Income Tax Act now explicitly includes cryptocurrencies under the tax net, officially recognizing them as Virtual Digital Assets (VDAs). Anyone who fails to comply with these new tax laws will face severe penalties, including a 70% levy on undisclosed profits. - Enhanced Government Oversight and Retroactive Assessment:
This legislative shift is part of a broader effort to crack down on illicit tax activities within the crypto space. Indian authorities have already started tightening their surveillance, with several crypto exchanges under investigation for unpaid Goods and Services Taxes (GST). The government’s tax enforcement actions have included major demands, with Binance facing a tax demand of ₹722 crore ($85 million) in 2024.
The government is using these stringent tax measures to rein in the rapidly growing crypto market and ensure that all earnings are appropriately taxed. The move is expected to significantly increase compliance and transparency within India’s crypto ecosystem.
Impact on Crypto Exchanges and Investors
Crypto exchanges operating in India will be required to file detailed reports on crypto transactions under Section 285BAA of the Income Tax Act. This comes as part of a wider effort to ensure all crypto activities are fully disclosed, thus preventing potential tax evasion. Investors and traders will need to reassess their portfolios and consider past unreported gains, as the 70% penalty could apply retroactively. This new policy could have a considerable impact on the Indian crypto market, with investors scrambling to comply before the February 2025 deadline.
With the Indian government intensifying its regulatory approach, both investors and exchanges will need to prepare for higher levels of scrutiny and stricter tax compliance measures. Failure to report could result in substantial financial penalties, which could reshape India’s rapidly expanding crypto landscape.
