In a major and crucial step towards the regulations of virtual digital assets (VDAs) in India, the draft Income Tax Bill, 2025, tabled in the Lok Sabha today, introduces strict reporting requirements for crypto transactions. The draft legislation defines VDAs as cryptos, tokens, NFTs, and any other digital assets specified by the government, and says such digital assets are transferable and tradable.

Reacting to the compliance requirements in the new Income Tax Bill, 2025, Vikram Subburaj, CEO, Giottus Crypto Platform, says the Finance Bill 2025 has fulfilled the long-pending task of legislatively defining virtual digital assets (VDAs). "The document explicitly describes VDAs as a digital representation of value that relies on a cryptographically secured distributed ledger or a similar technology to validate and secure transactions". This formalisation is indicative of bringing crypto within the ambit of the Indian financial framework. By legally classifying VDAs, we are moving towards greater regulatory clarity. This is crucial in the mainstream adoption of blockchain-based financial instruments."

The new law proposes that entities handling crypto assets must furnish details of transactions to tax authorities at a specific time. Highlighting the obligation on entities to furnish information on the transaction of crypto assets, the new bill says: "Any person, being a reporting entity, as prescribed, in respect of a crypto-asset, shall furnish information in respect of a transaction of such crypto-asset in a statement, for such period, within such time, in such form and manner and to such income-tax authority, as prescribed."

The inclusion of cryptoassets in the Income Tax Bill marks a significant regulatory shift for the VDA ecosystem, says Ashish Singhal, Co-founder CoinSwitch and Lemonn. "Under the bill, entities required to report must provide detailed information regarding their cryptoassets. This includes disclosing gains from trading, selling, or swapping cryptoassets, which will be taxed at a flat rate of 30% plus a 4% surcharge."

Under the new bill, if the tax authority finds errors or missing details in the crypto transaction report submitted by a designated entity, it will notify the person responsible for filing it. To ensure compliance and accuracy in the reporting of such crypto transactions, the new bill allows correction if there are missing details or errors. However, if the entity concerned fails to fix it in 30 days, the information will be deemed "inaccurate", thus attracting penalties or legal action.

"Where the prescribed income-tax authority considers that the statement furnished under sub-section (1) is defective, he may intimate the defect to the person who has furnished such statement and give him an opportunity of rectifying the defect within thirty days from the date of such intimation or such further period as may be allowed, and if the defect is not rectified within such period, the provisions of this Act shall apply as if such person had furnished inaccurate information in the statement," says the new I-T bill.

If anyone realises errors in their report to the tax authorities, they will have to notify and correct them in 10 days, says the new tax bill. "If any person, having furnished a statement under sub-section (1), or in pursuance of a notice issued under sub-section (3), comes to know or discovers any inaccuracy in the information provided in the statement, he shall within ten days inform the prescribed income-tax authority, the inaccuracy in such statement and furnish the correct information in such manner as prescribed."

The obligation for reporting entities to furnish information on crypto transactions will enhance transparency and align with efforts by leading crypto exchanges to usher in a structured, compliant crypto ecosystem, says Subburaj of Giottus. "While the tax framework remains unchanged, this evolution in regulatory stance signals a willingness to engage with the industry and refine policies over time."

Singhal of Coinswitch says with this inclusion alongside “money, bullion, and jewellery” for reporting undisclosed assets, and enhancing compliance, the government aims to mitigate risks associated with unaccounted transactions and improve overall market integrity. "This is a critical step in India's ongoing efforts to regulate the crypto market and ensure compliance with tax obligations,'' he adds.

The new bill also says the central government may set rules mandating certain entities to register with the prescribed income-tax authority; maintain records in a specific manner; and carry due diligence for the identification of any crypto-asset user or owner.

The finance ministry, in its FAQs issued on the new tax bill, also says there is no change in the scope (how they are defined or taxed) of ‘virtual digital asset’ under the Income Tax Bill, 2025, and that the definition of the bill incorporates the amendment already proposed under the Finance Bill, 2025.