Govt introduces new compliance requirements for crypto-asset transactions

Under the proposed framework, any prescribed reporting entity dealing in crypto-assets will be required to furnish transaction details within a specified period

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Gains made from trading cryptocurrencies will continue to be taxed at 30 per cent as there was no relief on that front in the Budget announcement, even as the government has introduced a new section in the Income-tax Act, 1961, making it obligatory for investors to “furnish information on crypto-asset transactions”. 

Finance Minister Nirmala Sitharaman has proposed the insertion of Section 285BAA in the Income-tax Act, 1961, making it mandatory to furnish transaction details.

 

She has also proposed that “virtual digital asset” should be included in defining undisclosed income, under which income from gambling, horse racing, crypto trading used to be reported so far.

 

Additionally, the government has expanded the definition of virtual digital assets (VDA) under Section 2(47A) to include “crypto-assets that rely on cryptographic security and distributed ledger technology”, ensuring broader regulatory coverage.

 

These amendments, set to take effect from April 1, 2026, aim to strengthen compliance and monitoring of digital asset transactions in India. 

 

During the press conference, Tuhin Kanta Pandey said that as India has been included in the list of 52"Relevant" jurisdictions for the purpose of Crypto-Asset Reporting Framework (CARF), it has been made obligatory to furnish information of crypto assets. CARF provides for th automatic exchange of tax-relevant information (AEOI) on crypto-assets. The G20 leader's New Delhi Declaration called for the sift implementation of the CARF. 

 

Under the proposed framework, any prescribed reporting entity dealing in crypto-assets will be required to furnish details of transactions within a specified period and in a prescribed format to the relevant income-tax authority. If the furnished statement contains defects, the entity will be given 30 days to rectify them, failing which it will be treated as inaccurate reporting under the Act.

 

If an entity fails to submit the required statement, the income-tax authority may issue a notice requiring compliance within a specified timeframe. Entities discovering errors in their submitted statements must report the inaccuracies and furnish corrected information within the prescribed period. 

 

The Central government will frame rules specifying the entities required to register with tax authorities, the type of information to be maintained, and the due diligence measures for identifying crypto-asset users. 

 

This move comes in the wake of the Finance Act, 2022, which introduced taxation for VDAs under Section 115BBH, imposing a 30 per cent tax on gains from digital asset transfers and a 1 per cent TDS under Section 194S on transactions, including those settled in kind. 

 

Sandeep Jhunjhunwala, M&A Tax Partner at Nangia Andersen LLP said, “The definition of Virtual Digital Assets is sought to be extended to align with the definition of crypto assets in the Crypto-Asset Reporting Framework (CARF) designed by the OECD. ... With a subsisting expanded definition of VDAs under the Income Tax Act, the memorandum to the Finance Bill 2025 does not articulate the antithesis behind adding an additional clause on crypto assets in the definition and the variants that are possibly sought to be covered within this clause.

 

“Also, the cloudiness in the intent behind restricting the semi-fungible token (SFT) reporting to only crypto assets defined under the proposed newly inserted clause and not to VDAs at large, again, leaves players in the crypto market puzzled,” Jhunjhunwala added.  

PROPOSALS

 

* New section in I-T Act to make it obligatory for investors to furnish info on crypto asset transactions

 

* Entities dealing in crypto assets to furnish details of transactions to the relevant I-T authority

 

* Inclusion of virtual digital assets (VDAs) in defining undisclosed income

 

* Expansion of VDA definition to include crypto assets that rely on cryptographic security and distributed ledger technology