India Tightens Crypto Scrutiny as Parliament Flags Sector as ‘High Risk’

India’s crypto sector is once again under regulatory focus after a Parliamentary Standing Committee on Finance reportedly classified the country’s virtual digital asset (VDA) ecosystem as “high risk.” 

The discussion brought together senior government officials, tax authorities, intelligence agencies, and representatives from major exchanges, including Binance, WazirX, and ZebPay.

Officials reportedly warned lawmakers that crypto-related activity in India is no longer just about speculation or volatile trading. Intelligence inputs linked parts of the ecosystem to money laundering, cyber fraud, terror financing, narcotics trafficking, human trafficking, Ponzi schemes, and illegal cross-border fund movement.

The committee, chaired by BJP MP Bhartruhari Mahtab, was briefed by senior officials from the Revenue Department, Corporate Affairs Ministry, and the Central Board of Direct Taxes (CBDT). 

Massive Compliance Gap Raises Alarm

One of the biggest concerns discussed during the meeting was the widening gap between crypto trading activity and tax disclosures.

According to officials, nearly 6.45 lakh individuals were subjected to TDS deductions on crypto transactions during FY23. However, only around 1.39 lakh users actually disclosed crypto-related income while filing tax returns. The mismatch has now become a major red flag for regulators and tax authorities.

Despite India already imposing a 30% tax on crypto gains along with a 1% TDS rule since 2022, trading activity remains strong. 

Lawmakers reportedly noted that “thousands of crores” continue flowing into digital assets, with a significant portion moving to offshore exchanges outside India’s direct regulatory oversight.

Enforcement Actions Are Increasing

India has also intensified enforcement over the past year. The Financial Intelligence Unit of India (FIU-IND) reportedly initiated 52 compliance proceedings under anti-money laundering laws, mainly targeting offshore crypto firms operating without proper registration.

Authorities imposed penalties totaling ₹29 crore on platforms including Coinbase, Binance, KuCoin, and Bybit. Officials also blocked 63 URLs and disabled access to 85 crypto-related websites and platforms for non-compliance.

Meanwhile, crypto tax collections have continued rising sharply. VDA-related tax revenue reportedly climbed from ₹269 crore in AY 2023-24 to ₹437 crore in AY 2024-25, while TDS collections increased to ₹364.62 crore.

Government Studying Global Crypto Models

Indian policymakers are now studying crypto regulations adopted by countries including the US, EU, Japan, Brazil, and China before deciding the next phase of regulation. Officials are also considering stricter reporting norms, PAN-linked crypto ownership tracking, and uniform valuation standards as oversight around the sector continues to tighten.