India Tightens Crypto Tax Enforcement: New 70% Penalty Framework Takes Effect in 2025

Cryptocurrency investors in India are bracing for stricter tax compliance requirements following significant legislative amendments. Finance Minister Nirmala Sitharaman’s Union Budget 2025 announcement introduces sweeping changes to how crypto gains are taxed on crypto in India, bringing digital assets under the same scrutiny as traditional financial instruments.

The New Tax Regime: What Changed

Starting February 1, 2025, cryptocurrency holdings fall under Virtual Digital Assets (VDAs) classification within India’s Income Tax Act. This reclassification means crypto gains now qualify for assessment under Section 158B, which addresses undisclosed income sources—the same framework previously applied to cash, precious metals, and jewelry.

The Finance Ministry’s documentation clarifies the regulatory scope: “Crypto asset has been defined in section 2(47A) of the Act under the existing definition of Virtual Digital Asset […] A reporting entity will be required to furnish information of crypto asset.” This mandatory reporting obligation represents a fundamental shift in how authorities can track digital asset transactions.

Understanding the 70% Penalty Structure

Holders who failed to declare crypto profits face substantial consequences. Tax authorities may impose penalties reaching 70% of the combined tax and interest owed on undisclosed gains—but only if these gains surface in updated income tax returns covering the preceding 48 months.

According to official documentation: “70% of the aggregate of tax and interest payable on additional income disclosed in the updated income tax return [ITR].”

This penalty mechanism creates strong incentives for voluntary disclosure before enforcement sweeps intensify.

Recent Enforcement Actions Signal Tougher Stance

India’s tax authorities have already demonstrated their willingness to pursue crypto-related tax violations. In December 2024, the government identified approximately 824 crore Indian rupees ($97 million) in unpaid goods and service taxes (GST) across multiple exchanges. Several months earlier, in August 2024, law enforcement demanded 722 crore Indian rupees ($85 million) in unpaid taxes from a major international platform.

These actions preceded the formal regulatory announcement, suggesting authorities had been building their enforcement apparatus throughout 2024.

Global Context: A Worldwide Taxation Push

India’s approach mirrors broader international regulatory trends. The US Internal Revenue Service introduced new crypto reporting mandates in June 2024, requiring centralized exchanges and brokers to file third-party tax reports beginning in 2025. This new framework extends to cryptocurrency sales and digital asset exchanges—marking the first time such comprehensive reporting requirements apply.

The Blockchain Association challenged these US rules in December 2024, filing suit against the IRS on constitutional grounds, particularly objecting to decentralized exchange inclusion under “broker” definitions.

Market Response and Compliance Outlook

The regulatory environment has already prompted market reactions. One major exchange suspended Indian operations on January 10, 2025, citing regulatory pressure while attempting to secure a full operational license from India’s Financial Intelligence Unit.

For crypto traders and investors in India, the path forward requires careful attention to documentation, historical transaction records, and updated tax filing procedures. The retrospective application of these rules means even previously unreported gains from earlier years may now fall under the new assessment framework.