Government Introduces Stricter Tax Rules for Virtual Digital Assets

Current Affairs National

Posted by newadmin on 2025-02-26 08:48:47 |

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The Government of India has recently introduced changes to the taxation of virtual digital assets (VDAs) to curb the misuse of cryptocurrencies and strengthen tax compliance. Under the proposed measures, VDAs will be classified as undisclosed income under the block assessment scheme, which allows for the evaluation of unreported income discovered during tax searches.

The new definition of VDAs now includes all types of crypto assets, such as cryptocurrencies, non-fungible tokens (NFTs), and other digital representations of value, while explicitly excluding gift cards and vouchers. By broadening this scope, the government aims to ensure that all relevant transactions are brought within the tax framework.

Undisclosed income refers to earnings that have not been reported in an individual's income tax return. The Income Tax Act already includes various assets such as money, bullion, jewellery, and other valuables in this category. With the new proposal, VDAs will also be treated as undisclosed income, meaning that any unreported earnings from these digital assets will be subject to taxation.

The block assessment scheme enables the assessment of undisclosed income over a specific period, covering the six assessment years preceding the year of the tax search. This system facilitates a consolidated review for the entire block period, aiming to streamline tax processes and minimize litigation. Once a block assessment is initiated, no further evaluations for that period will be allowed.

Failure to disclose income from VDAs will attract a tax rate of 60%, along with a penalty of 50% on the undisclosed amount. This high taxation rate serves as a deterrent to non-disclosure, ensuring that all income, including crypto-related transactions, is accurately reported.

As part of these changes, entities engaged in cryptocurrency transactions will be mandated to report such activities, thereby improving transparency in the crypto market. These reporting requirements will come into effect from April 1, 2026, marking a significant step toward regulating the cryptocurrency sector.

The proposed reforms are expected to enhance tax administration by increasing compliance and reducing opportunities for tax evasion in the rapidly evolving digital asset landscape. By bringing VDAs under stricter regulations, the government aims to establish greater control over the taxation of digital financial assets.

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