Income Tax Department Investigates Cryptocurrency Payments by Indian Professionals
Tax Authorities Target Cryptocurrency Earnings
Recent reports indicate that the Income Tax Department has identified numerous instances of Indian professionals employed by foreign companies who are receiving payments in cryptocurrencies without declaring them in their tax returns. Sources reveal that the authorities have started reaching out to these individuals via email, requesting clarification regarding their undisclosed income and foreign assets.
Investigations have uncovered that individuals from various sectors, including IT, consulting, education, and auditing, have been working for international clients, with some opting to receive part of their salaries in stablecoins or other forms of cryptocurrency. In many cases, these digital currencies were stored in wallets associated with accounts in jurisdictions with lower tax rates outside of India.
Additionally, the inquiry has revealed that some residents are investing in foreign crypto exchange-traded funds (ETFs) through offshore brokerage accounts without reporting their investments or any profits. These revelations are the result of a data analytics initiative that utilized information from international financial institutions, disclosures from crypto exchanges, and global tax information-sharing agreements.
This initiative is part of a larger strategy by tax authorities to monitor new types of cross-border income and investments in digital assets. As remote work becomes more prevalent, tax officials are paying closer attention to cases where Indian professionals undertake overseas roles and receive cryptocurrency payments. Enhanced data-sharing protocols and blockchain analytics tools have facilitated the tracking of digital asset transactions and their conversion into fiat currency.
Officials have observed that while moonlighting increased during the pandemic, the use of cryptocurrencies for payment appears to be a recent strategy to evade disclosure. However, advancements in data-matching capabilities are allowing authorities to monitor these transactions more effectively.
According to Indian tax regulations, residents are obligated to pay taxes on their worldwide income, regardless of where it is earned or the payment method, including cryptocurrencies. Since the implementation of the virtual digital assets tax framework in 2022, profits from such assets are taxed at a rate of 30%, in addition to any applicable levies. Not disclosing foreign income and assets may also lead to penalties under the Black Money Act.