Parliamentary panel links crypto to trafficking, fraud; tax gap of 5 lakh users drives PAN-linked tracking and stricter enforcement.
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India’s crypto sector is under intensified regulatory scrutiny after a Parliamentary Standing Committee on Finance classified the country’s virtual digital asset ecosystem as “high risk.” The committee, chaired by BJP MP Bhartruhari Mahtab, brought together senior officials from the Revenue Department, Corporate Affairs Ministry, and Central Board of Direct Taxes (CBDT) alongside representatives from exchanges including Binance, WazirX, and ZebPay.
The classification is not a new law. It is a risk assessment that flags where enforcement and legislative attention will concentrate. For traders active in India’s market, the concrete trigger is a widening tax disclosure gap that regulators now treat as evidence of systemic under-reporting.
The single most important data point from the meeting is the mismatch between TDS deductions and tax return disclosures. During FY23, nearly 6.45 lakh individuals were subject to 1% TDS on crypto transactions. Only about 1.39 lakh users actually reported crypto income in their tax filings. That leaves roughly 5.06 lakh users who transacted enough to trigger TDS did not disclose gains or income.
The 1% TDS on crypto transactions since 2022 was designed partly as a surveillance mechanism. The data it generates now forms the basis for the next phase of oversight. Lawmakers reportedly noted that “thousands of crores” continue flowing into digital assets, with a significant share moving to offshore exchanges outside India’s direct regulatory reach.
The gap is not just an administrative problem. It provides regulators with a ready-made list of individuals who likely owe tax. India already imposes a 30% tax on crypto gains and the 1% TDS. If the CBDT moves to cross-reference TDS data with income tax returns automatically, the compliance burden shifts from exchanges to individual traders. That scenario would mirror the PAN-linked tracking already used for high-value financial transactions.
India’s Financial Intelligence Unit (FIU-IND) initiated 52 compliance proceedings under anti-money laundering laws, primarily targeting offshore crypto firms operating without proper registration. Authorities imposed penalties totaling ₹29 crore on platforms including Coinbase, Binance, KuCoin, and Bybit. They also blocked 63 URLs and disabled access to 85 crypto-related websites for non-compliance.
Despite the restrictions, trading activity remains robust. VDA-related tax revenue climbed from ₹269 crore in assessment year 2023-24 to ₹437 crore in AY 2024-25. TDS collections on crypto transactions increased to ₹364.62 crore over the same period. The rising revenue stream gives regulators less incentive to relax scrutiny and more justification to expand it.
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Indian policymakers are now studying crypto regulations adopted in the US, EU, Japan, Brazil, and China before deciding on the next phase of rules. The reference set is telling: it includes strict licensing regimes (Japan, EU’s MiCA) and outright prohibitions (China). India’s approach has historically leaned toward taxation without legalization, the committee’s “high risk” label suggests a move toward more prescriptive compliance.
Officials are considering stricter reporting norms, PAN-linked crypto ownership tracking, and uniform valuation standards. If implemented, PAN-linked tracking would effectively create a national registry of crypto holders, enabling automated cross-referencing with tax filings. That would close the disclosure gap mechanically. It would also reduce the pseudonymity that attracts many retail traders.
For anyone trading Indian crypto markets or holding assets on domestic exchanges, the immediate risk is operational disruption. Platforms like WazirX and ZebPay face higher compliance costs. Offshore exchanges like Binance and Coinbase may need to re-apply for registrations or face renewed blocks. The 30% tax on gains and 1% TDS are already in place. The next layer will focus on who holds what, not just who earns what.
India’s crypto regulation is still evolving. The direction is clear: classification as “high risk” accelerates the timeline for tighter surveillance. The question is whether the new rules will drive activity deeper offshore or force compliance. For now, the tax disclosure gap remains the most concrete catalyst for change. Watch for any official statement from the Finance Ministry or CBDT on PAN-linked tracking. That would mark the transition from committee discussion to policy action.
For broader context on how global regulatory shifts affect crypto markets, see our crypto market analysis.
Prepared with AlphaScala editorial tooling from the source reporting linked above. Indexable analysis may include a cited Alpha Score value. Publishing checks screen each story before release. Educational coverage, not personalized advice.