India's Crypto Crackdown: 70% Penalty for Unreported Gains

India has introduced a significant amendment to its tax laws, targeting cryptocurrency investors and traders who fail to disclose their profits. The new provision, effective retrospectively from February 1, 2025, imposes substantial tax penalties on unreported crypto gains that have remained undisclosed for up to 48 months after the relevant tax assessment year.

Under the new amendment, cryptocurrencies are now classified under Section 158B of the Income Tax Act, which reports undisclosed income. This places cryptocurrencies on par with traditional assets such as money, jewelry, and bullion. The penalty for failing to report these gains is set at 70% of the aggregate of tax and interest payable on the additional income disclosed in the updated income tax return (ITR).

The Indian government has been actively pursuing tax law violations in the crypto sector. In the past, it has identified unpaid goods and service taxes (GST) amounting to 824 crore Indian rupees (approximately $97 million) by several crypto exchanges. Additionally, law enforcement agencies have requested leading cryptocurrency exchange Binance to pay 722 crore Indian rupees (around $85 million) in unpaid taxes. The new amendment ensures that such penalties become a standing order.

In the wake of this development, it is worth noting that the US and Italy have also been considering changes to their crypto tax policies. Eric Trump, a businessman and son of the US President, has allegedly confirmed that some crypto projects like HBAR and XRP would have tax incentives, with no capital gains tax for non-US-based companies. Meanwhile, Italy has plans to increase taxes on cryptocurrency capital gains. These international developments may influence investment decisions, with investors potentially shifting towards "zero capital gains tax" entities to the disadvantage of foreign-origin cryptocurrencies.