India's Income Tax Department Warns of Cryptocurrency Tax Enforcement Risks: Anonymity and Cross-Border Transactions Pose Structural Threats

Source: TokenPost Original Title: India’s Tax Authority: ‘Cryptocurrency Poses Structural Threats to Tax Enforcement’… Challenges in Cross-Border and Anonymous Transactions Original Link:

India’s Tax Authority: Cryptocurrency Constitutes a Structural Threat to Tax Enforcement

India’s Income Tax Department officially raised concerns during a parliamentary finance committee hearing, stating that the anonymity and cross-border nature of cryptocurrencies pose structural risks to the existing tax system. The meeting was attended by key agencies including the Central Board of Direct Taxes (CBDT), the Financial Intelligence Unit (FIU), and the Ministry of Finance, focusing on the report titled “Research and Future Directions of Virtual Digital Assets (VDA).”

The department emphasized that the widespread use of overseas exchanges, personal wallets, and DeFi applications makes tax information verification difficult. Especially when asset ownership verification and transaction flow tracking involve multiple countries, it becomes practically “impossible to reconstruct.” Officials noted that “anonymity, cross-border features, and near-instant transfers enable evasion of government regulation,” which is a significant issue from a tax enforcement perspective.

Impact of Digital Asset Characteristics on the Tax System

India has implemented one of the strictest cryptocurrency tax regimes globally. A flat 30% income tax is levied on all cryptocurrency gains, along with a 1% withholding tax (TDS) on all transactions. However, technological features like anonymity and the existence of overseas platforms still create loopholes.

The government has taken measures in recent months to improve information sharing mechanisms, but tax authorities still report “cross-border information gaps.” Particularly when transactions occur through overseas platforms, authorities face significant limitations in assessing the substance of transactions and jurisdiction.

Growing Adoption and Regulatory Challenges

Despite these structural risks, cryptocurrency adoption in India continues to steadily expand. A leading compliant platform has been authorized to re-enter the Indian market in 2025. During the 2024-2025 fiscal year, the Financial Intelligence Unit (FIU) approved operations for 49 cryptocurrency exchanges. Market participation persists even under high tax burdens.

Reserve Bank of India Warns of Stablecoin Risks, Prioritizes CBDC

The Reserve Bank of India (RBI) issued a warning about stablecoins in its newly released Financial Stability Report, echoing the stance of the tax department. The report states that privately issued stablecoins could threaten the credibility and stability of the financial system and require cautious policy responses.

RBI noted that “CBDC ensures a unified monetary system and final settlement mechanism, whereas stablecoins may become risk factors during market instability.” The central bank added that “each country needs to develop appropriate regulatory and response measures based on its own conditions.”

Both the government and the central bank show cautious attitudes toward cryptocurrencies potentially destabilizing the existing financial and tax systems. If regulatory responses do not keep pace with technological developments and adoption, regulators may find themselves at a disadvantage in the fight against “invisible transactions.”