In a significant step toward regulating cryptocurrency transactions and curbing tax evasion, the government has proposed to include Virtual Digital Assets (VDAs) within the definition of "undisclosed income" under the block assessment scheme. This change, part of the Finance Bill 2025, means that any undisclosed crypto holdings or transactions found during tax searches could attract a steep 60% tax, along with a 50% penalty.
Crypto Under Block Assessment: What It Means
The block assessment scheme is a special procedure under the Income Tax Act to assess undisclosed income detected during search or requisition operations. The scheme was revised in the July 2024 Budget to streamline tax administration and enhance efficiency in handling search cases. Currently, under Section 158B(b) of the Income Tax Act, undisclosed income includes money, bullion, jewellery, valuable assets, and entries in books of accounts not reported in tax returns. With the new amendment, VDAs such as cryptocurrencies, NFTs, and tokens will also fall under this category, effective from February 1, 2025.
Tax and Penalty Implications
Once enforced, the provision will subject undisclosed crypto income to:
- Flat 60% tax on the total undisclosed income for the block period.
- 50% penalty on the assessed tax amount.
- Block period covering the preceding six assessment years from the year in which the tax search was conducted.
This means that if an individual or entity fails to disclose crypto earnings and such assets are uncovered during a tax search, the entire undisclosed amount will be taxed at an effective rate of 90% (including penalty).
New Crypto Reporting & Definition Amendments
Apart from the taxation aspect, the Finance Bill 2025 also introduces two key changes:
Mandatory Reporting of Crypto Transactions
- Reporting entities, including exchanges and financial institutions, will be required to furnish transaction details involving crypto assets.
- This amendment will take effect from April 1, 2026.
Expanded Definition of VDAs
- The bill expands the definition of VDAs to include any digital asset secured via cryptographic distributed ledger technology, even if not explicitly categorized as a VDA earlier.
- This will be applicable from the assessment year 2026-27.
A Stricter Tax Regime for Crypto
With these amendments, the government continues its stringent stance on crypto regulation, reinforcing the tax compliance framework introduced in the Union Budget 2022. As per existing laws, VDAs already attract a 30% tax on gains, with 1% TDS on transactions exceeding ₹50,000. However, under the block assessment scheme, tax authorities can now retroactively assess and penalize unreported crypto holdings, further tightening the noose around non-compliant investors.
These measures highlight the government's determination to curb crypto-related tax evasion and strengthen regulatory oversight, ensuring transparency in India's digital asset economy.
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