AI and machine learning deployed to detect suspicious crypto transaction patterns.
The Indian government is taking serious steps to curb tax evasion in the cryptocurrency sector. It is now using advanced tools like data analytics, artificial intelligence (AI), and digital forensics to track and investigate virtual digital asset (VDA) transactions. The action is meant to enhance compliance and increase revenue collection concerning crypto-related earnings.
Firstly, the government disclosed in Parliament that it is concentrating on capacity building of the tax officers. Special training programs, webinars, and workshops are being organized with the assistance of such institutions as the National Forensic Science University (NFSU) in Goa. In these programs, officers are trained on blockchain analysis, digital evidence, and digital forensics. Because of this, they are in a better position to track and investigate VDA transactions more effectively.
However, the present system still has some loopholes. The government acknowledged that they are failing to conduct real-time matching of crypto transactions that are reported in the income tax returns with the information provided by the Virtual Asset Service Providers (VASPs). Rather, they are detected based on the differences between Tax Deducted at Source (TDS) returns that VASPs file and tax returns that individuals file.
In order to fill this divide, the Central Board of Direct Taxes (CBDT) introduced the NUDGE campaign. In this campaign, the government notifies those taxpayers who failed to report VDA transactions of 1 lakh rupees and above.
Besides enforcement, the crypto taxation system in India is also very rigid. The profits made through crypto transfers are subject to a flat 30 percent income tax. This tax does not permit any deductions other than the cost of acquisition. Further, a 1% TDS is also imposed on transactions that exceed some limits. These were formalized within the financial year 2022-23. During that year alone, the government was able to get 269.09 crore of income related to VDA.
The government has also started using AI and machine learning to further boost its oversight. These instruments facilitate the identification of anomalies in transaction patterns and enforcement. As per the latest reports, the government received a total of 437 crore rupees as taxes on VDA-related incomes during the FY 2022-23 alone, which is a huge amount as compared to the last few years.
Another major piece of news is that international crypto exchange Bybit has gone in tandem with Indian laws. On July 4, the company declared that it would be charging an 18% Goods and Services Tax (GST) on all service and trading fees for Indian users. The new tax policy became effective on 7 July 2025. The GST is charged to almost all services provided by Bybit, such as spot and margin trading, derivatives, crypto bought with fiat, withdrawals, and even staking rewards.
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