February 19, 2025
By Anjali Kochhar
In a historic step toward regulating digital assets, India’s Income Tax Bill 2025 has, for the first time, explicitly defined Virtual Digital Assets (VDAs) under the Income Tax Act. This move not only provides long-awaited clarity to India’s rapidly expanding crypto market but also introduces strict tax regulations, classifying unreported crypto gains as ‘undisclosed income.’ While the bill aims to enhance transparency and compliance, it has sparked intense debate among investors and industry leaders about its potential impact on crypto adoption and market growth.
The bill amends Section 2(47A) of the Income Tax Act to define VDAs comprehensively. According to the amendment, a VDA encompasses any information, code, number, or token (excluding Indian or foreign currency) generated through cryptographic means or otherwise, providing a digital representation of value that can be transferred, stored, or traded electronically. This definition also includes non-fungible tokens (NFTs) and similar digital assets, granting the Central Government authority to notify and exclude specific digital assets from this classification as deemed necessary.
One of the pivotal aspects of the bill is the classification of unreported crypto gains as ‘undisclosed income.’ This categorisation subjects such income to a 60% tax rate, accompanied by a substantial 50% penalty on the tax amount if detected during income tax searches or inquiries. This stringent measure underscores the government’s intent to deter tax evasion within the crypto sector.
To enhance transparency and compliance, the bill introduces Section 285BAA, mandating entities dealing in crypto-assets to furnish transaction details to tax authorities. This requirement aligns crypto exchanges and intermediaries with reporting obligations similar to those imposed on traditional financial institutions, thereby strengthening oversight of digital asset transactions.
The crypto industry has responded with a mix of caution and optimism. Anish Jain, Founder of W Chain, noted that the market is in a dynamic phase, characterised by both volatility and growth opportunities. He emphasised that the bill’s clarification of crypto as ‘undisclosed income’ has prompted investors to meticulously assess the implications for tax reporting and compliance. While concerns exist regarding potential categorisation as ‘undisclosed income,’ Jain acknowledged that defining VDAs under Section 2(47A) brings much-needed clarity.
Shivam Thakral, CEO of BuyUcoin, India’s second-longest-running digital asset exchange, welcomed the bill’s commitment to transparency within the VDA space. He stated that including crypto as ‘undisclosed income’ aligns with efforts to uphold high ethical standards and combat money laundering. Thakral expressed readiness to assist users in understanding and complying with the new guidelines, viewing this development as a positive step toward positioning India as a leader in responsible digital asset innovation.
The formal recognition and taxation of VDAs are poised to have significant implications for investors and the broader crypto market in India. The introduction of a dedicated Schedule VDA in the Income Tax Return is expected to streamline the reporting process, fostering increased transparency and formalisation of crypto investments.
However, the stringent tax rates and penalties associated with non-compliance may deter casual investors and could impact trading volumes. The industry anticipates that clear regulations will instill greater confidence among participants, potentially attracting institutional investors and promoting sustainable growth within the sector.
While the government’s move brings clarity, it also raises questions about balancing regulation with innovation. The crypto community advocates for a regulatory environment that safeguards investors without stifling technological advancement. Collaborative efforts between regulators and industry stakeholders are essential to achieve a framework that fosters innovation while ensuring compliance and security.
About the author
Anjali Kochhar covers cryptocurrency and blockchain stories in India as well as globally. Having been in the field of media and journalism for over three years now, she has developed a sharp news sense and works hard to present information that goes beyond the obvious. She is an avid reader and loves writing on a wide range of subjects.
