I-T department flags major risks of cryptocurrencies, joins RBI in cautioning against VDAs
Jan 8, 2026
Synopsis
The Income Tax Department has raised major concerns over virtual digital assets (VDAs), including cryptocurrencies, echoing the Reserve Bank of India’s cautious stance. Officials highlighted risks such as anonymous, cross-border, and near-instant transfers, use of offshore exchanges, private wallets, and decentralized platforms, which make tax tracking and enforcement extremely difficult.
The income tax department has flagged major risks associated with virtual digital assets (VDA), such as cryptocurrency, joining the Reserve Bank of India in opposing the entry of these instruments, reported Times of India.
In a presentation to the parliamentary standing committee of finance, the tax authorities flagged as to how anonymous, borderless and near-instant value transfer made it possible to move funds through a system without regulated financial intermediaries, a person familiar with the discussions told TOI.
Besides, offshore exchanges, private wallets and decentralised platforms made it very difficult for the authorities to detect taxable income and also made the holdings opaque since the beneficial owners were not easily known.
Jurisdictional limitations with offshore VDA activity were also flagged as multiple jurisdictions may be involved, with little ability to check flows, making verification and recovery of tax dues virtually impossible. Although there have been efforts in recent months on sharing of information, it remains difficult, inhibiting the ability of tax officials to undertake proper assessment and reconstruction of transaction chains.
India is part of a group of countries that have largely resisted permitting cryptocurrency and stablecoins, despite strong lobbying and pressure from certain governments. The RBI has repeatedly expressed concerns, pointing to the absence of underlying assets, which makes these digital assets risky for investors. Additionally, enforcement agencies remain cautious, as virtual digital assets (VDAs) can potentially be misused for money laundering and financing terrorism.
The tax department said that since crypto platforms operate overseas, enforcement action may be tough, including issuing summons, or TDS collection. Many of the exchanges are also unregistered with the Financial Intelligence Unit and are outside the ambit of the tax department.
Indian tax authorities have sought to build in safeguards, including TDS, to track beneficiaries and have also mandated registration of entities dealing in crypto and other VDAs.
[The Economic Times]
