Crypto In The Union Budget 2025: Crypto Industry Faces Stricter Norms

After India recorded the second highest number of cryptocurrency users in the world in 2021, the Indian government introduced a dedicated regime for taxation of virtual digital assets in 2022. Under the said regime, any income arising from the transfer of VDAs are subject to a flat tax rate at 30% (plus any applicable surcharge and cess).

This VDA regime was largely unfavourable to the crypto industry, leading to a significant decline in crypto asset trading volumes. Even though there was a drop in trading volumes, the Indian crypto industry continued to remain resilient, with record adoption rates in 2023-2024 and numerous representations from industry bodies for relaxations in the tax regime.

Amid these developments in the crypto market, the Finance Bill 2025 has proposed changes to align with India’s commitment to the G-20 agenda on crypto assets, that seem more obligatory than intentional. 

With the stated intent of ensuring greater sharing of information and to curb potential misuse of VDAs, the legislation has proposed the following changes:

The bill has proposed to add VDAs within the scope of "undisclosed income" under Chapter XIV-B of the Income Tax Act, 1961 which deals with special procedures for assessing search cases. This provision empowers tax authorities to conduct block assessments when a search is carried out and provides that any income determined through such an assessment will be taxed at a steep rate of 60%. This introduction of VDAs under this framework represents a substantial shift in the regulatory landscape for crypto transactions and could spell doom for crypto traders who may have undisclosed income from crypto transactions.

Additionally, the bill also proposes to introduce a time limit for the completion of block assessments, which will now be set at 12 months from the end of the quarter in which the last authorisation for a search or requisition is executed. While these proposals are likely to intensify scrutiny on crypto traders, in the long run, they will push the centralisation of trading activity through registered platforms to ensure transaction monitoring and proper reporting.

While the VDA taxation regime did not establish any specific reporting requirements, the Ministry of Finance notified certain activities, which if carried on by entities, would classify them as ‘virtual digital asset service providers' that are ‘reporting entities’ under the Prevention of Money Laundering Act, 2002. Such VDASPs are, inter alia, obligated to register with Financial Intelligence Unit of India, undertake customer due diligence, monitor transactions and submit reports of crypto transactions, etc.

Now, the bill proposes to introduce a new obligation for 'reporting entities' (not defined) to furnish information about transactions involving ‘crypto assets’ with effect from April 2026. The proposal is a step taken by the Indian government in implementing the OECD Crypto Asset Reporting Framework, or CARF, which is designed to foster the automatic exchange of information between countries, addressing the growing concerns over tax evasion risks linked to cryptocurrencies and digital assets. The importance of this initiative was underscored during the G20 Leaders’ New Delhi Declaration, which called for the swift and effective implementation of the CARF.

Clarity and context are key: The definition of reporting entities, designated income-tax authority for registration, information to be reported, and the manner in which the same need to be reported are yet to be notified. However, the government is expected to draw guidance from CARF, in this regard. It is hoped that the delegated legislation will move away from recent blueprints and adopt a consultative approach specific to the Indian VDA industry as opposed to simple transplanting from the CARF.

Narrowing the scope: Unlike earlier iterations of the VDA definition, which cover a broader range of assets, the proposed reporting requirement specifically focuses on crypto assets i.e., assets which utilise blockchain technology (or similar technologies) for transaction validation and security. The brightline of distinguishing crypto asset from other VDAs, that are cryptographically generated and are a digital representation of value, would be an essential clarification.

Reporting fatigue: As on date, VDASPs are required to monitor and report transactions under the PMLA. Under the CARF-related provisions in the bill, reporting entities are required to register with a prescribed income-tax authority and undertake transaction reporting. Unless harmonised, this would create a divergent reporting regime, significantly multiplying compliance burdens.

Given that the Indian government aims to enforce stricter compliance, the concerns of the crypto industry, particularly the high tax burden, remain largely unaddressed. The long-term impact of these proposed changes on India's position in the global crypto market remains to be seen, but the outlook suggests that the domestic ecosystem will continue to be iced out, unless global geopolitical headwinds forces policymakers to change this outlook.

Anu Tiwari is a Partner (Head - Fintech) at Cyril Amarchand Mangaldas. Kunal Savani is a Partner at Cyril Amarchand Mangaldas. Bipluv Jhingan is a Principal Associate at Cyril Amarchand Mangaldas. Aditya Sarkar is an Associate at Cyril Amarchand Mangaldas.

Disclaimer: The views expressed here are those of the authors and do not necessarily represent the views of NDTV Profit or its editorial team.