India Tax Authority Joins RBI in Warning on Crypto Use Risk
- Tax officials told Parliament crypto structure weakens tracking and complicates control.
- RBI and tax agencies aligned before the budget, as crypto risks stay unresolved today.
- Cross-border trades and offshore platforms limit Indian reach despite AI data plans.
India’s income tax authorities have joined the Reserve Bank of India in raising concerns over virtual digital assets as the Union Budget approaches. Officials warned that enforcement gaps could weaken the government’s ability to track and tax crypto activity. The concerns were presented this week to lawmakers as India continues to tax crypto trades heavily despite lacking a formal regulatory framework.
On Wednesday, tax officials briefed the parliamentary standing committee of finance on risks linked to cryptocurrency and other virtual digital assets. The disclosure was first reported by The Times of India. The briefing came weeks before Finance Minister Nirmala Sitharaman prepares to present her ninth consecutive Union Budget on February 1.
Authorities told the committee that crypto technology complicates monitoring and compliance. They said borderless transfers and pseudonymous wallets reduce visibility for tax enforcement. Transactions also often occur outside regulated banking channels, creating gaps that officials struggle to close.
Enforcement Challenges Raised Before Parliament
Tax officials described several technical hurdles that limit oversight of crypto transactions. They pointed to the borderless nature of digital assets, which allows value transfers across jurisdictions without central intermediaries. This design reduces the effectiveness of domestic enforcement tools.
Officials also cited pseudonymous wallet addresses as a key challenge. These addresses do not directly reveal user identities. As a result, linking crypto activity to individual taxpayers requires extensive data analysis and cooperation from platforms.
In addition, authorities said many crypto transactions bypass regulated banking systems. Without bank intermediaries, standard reporting trails weaken. Officials warned that these features complicate audits and delay the detection of non-compliance.
Budget Timing and Policy Context
The concerns reflect wider institutional unease with privately issued cryptocurrencies. This unease persists even as India continues to tax crypto trades at a 30 percent flat rate. Traders also face a one percent tax deducted at the source on each transaction.
Despite these taxes, India has not introduced a comprehensive crypto law. As a result, officials rely on tax measures and enforcement tools rather than a full regulatory framework. This approach has drawn attention as budget preparations intensify.
The Cabinet Committee on Parliamentary Affairs has proposed February 1 for presenting the Union Budget 2026-27. The date falls on a Sunday. The Budget Session is expected to begin on January 28, according to the proposal.
India has instead prioritized a central bank-backed digital currency. Union Minister of Commerce and Industry Piyush Goyal said in October that heavy taxation aims to prevent users from being stuck with unbacked crypto assets.
Related: India Crypto SIP Adoption Rises As Long-Term Plans Favor
Cross-Border Activity and Data Tools
Tax authorities also raised concerns about cross-border crypto activity. Officials told lawmakers that multiple jurisdictions often become involved in a single transaction. This overlap limits enforcement reach, especially when platforms operate overseas.
Problems increase when exchanges remain unregistered with India’s Financial Intelligence Unit. In such cases, access to transaction data becomes limited. Officials said this restricts India’s ability to pursue compliance actions effectively.
Last July, authorities announced new steps to improve oversight. They said they would use artificial intelligence and global data sharing under the Crypto Asset Reporting Framework. The system allows cross-matching of TDS data from exchanges with income tax returns.
Officials said they would issue notices when discrepancies exceeded ₹ 1 lakh, or approximately $ 1,200. The move aims to narrow gaps between reported income and actual trading activity.
As regulators tighten coordination, one question remains central for policymakers and investors alike: Can India enforce crypto taxation without a clear regulatory framework?
