Unaccounted income invested in cryptocurrency under CBDT radar: Sources

Central Board of Direct Taxes (CBDT) is investigating instances of tax evasion and laundering of unaccounted income through crypto currency.

According to sources, the apex tax body has identified entities and individuals who have not declared such incomes and investments and e-mails have been sent to thousands of defaulting persons. The investigations pertain to AY 2023-24 and AY 2024-25.

The defaulters have been told to review their income tax returns and update if any income on account of virtual digital assets transactions have not been properly declared, sources pointed out.

According to sources, CBDT is investigating tax evasion and laundering of unaccounted income by high-risk persons through investment in crypto currency. “Such entities and individuals which are engaged in Virtual Digital Asset (VDA) transactions and have failed to comply with the Income-tax Act, 1961 have been identified for verification,” the sources pointed out.

The apex tax body deployed data analytics, which has shown that significant number of persons have violated provisions of Income Tax Act by not filing and offering tax on the income earned at lower rate or claiming cost indexation.

“ITRs filed by taxpayers are being verified with TDS returns filed by the virtual asset service providers (VASPs) popularly known as crypto exchanges and defaulters may be selected for further verification/ scrutiny,” sources pointed out.

It may be noted that the Section 115BBH of Income Tax Act, 1961 inserted by the Finance Act, 2022 prescribes flat tax rate of 30% (plus applicable surcharge and cess) on income from VDA transfer. The provision does not allow deduction of any expenses except cost of acquisition. Further, set-off of loss from VDA investment or trading is not allowed to be set off against any other income or for carry forward to subsequent years.

CBDT has recently embarked on a new approach termed as NUDGE (Non-intrusive Usage of Data to Guide and Enable) Taxpayers, as a part of TRUST Taxpayers FIRST philosophy. This campaign is seen as third NUDGE campaign launched by CBDT in last six months. Earlier NUDGE campaigns were on declaration of foreign assets/ income by taxpayers and withdrawal of bogus claims of deduction u/s 80GGC