Based on publicly available database[1] the cryptocurrencies market in India is projected to witness a significant growth in revenue, reaching a staggering amount of US$ 6.4bn by 2025, while US is expected to reach US$ 9,423m in 2025. In terms of average revenue per user, the cryptocurrencies market in India is estimated to be around US$ 59.6, in 2025. Looking at the number of users in the Indian cryptocurrencies market, it is projected to grow to 107.30m users by 2025. The user penetration rate, which indicates the percentage of the population using cryptocurrencies, is expected to be 7.35% in 2025.

Way back in 2013[2], the Reserve Bank of India (RBI) cautioned the users, holders and traders of virtual currencies, including bitcoins, about the potential financial, operational, legal, customer protection and security related risks. Since then, the digital representation of value has undergone changes in forms as well as tax and regulatory framework.

Tax authorities worldwide did not have required information to efficiently monitor crypto-asset revenues, which are easily traded across borders. This lack of information limited tax authorities’ ability to ensure that taxes are paid on crypto transactions. To address this gap, the OECD published the Crypto-Asset Reporting Framework (CARF) and some amendments to the OECD Common Reporting Standard (CRS). About 65 jurisdictions have committed to implement the CARF in time to commence exchanges in 2027 (54 countries) and 2028 (11 countries) as part of the Global Forum’s CARF commitment process. The European Union formally adopted CARF on 17 October 2023 and issued directive to its member states on CARF implementation.

The CARF mandates crypto-asset service providers to gather information about users, such as their tax residences and tax identification numbers, and report this data to the relevant domestic tax authority. Tax authorities will then share this information among themselves to support tax compliance, assessment, and monitoring.

Taxation of virtual digital assets (VDA) was introduced in India’s Income-tax Act, 1961 (the Act) vide the Finance Act 2022. As per section 115BBH of the Act, transfer of VDA is taxed at the rate of 30% with no deduction in respect of expenditure (other than cost of acquisition). VDA has been defined widely in section 2(47A) of the Act. Further, section 194S was introduced to capture details of VDA transactions by way of TDS @ 1% of the transaction value on payment for transfer of VDA.

Budget 2025 has now proposed to insert section 285BAA introducing the obligation to furnish information of crypto-assets effective from 1 April 2026 i.e. from next financial year. Definition of crypto-asset will be included in the definition of VDA as “digital representation of value that relies on a cryptographically secured distributed ledger or a similar technology to validate and secure transactions”

The aforesaid proposed amendments require reporting entity to furnish statement of transactions in crypto-assets in a particular form and timeline to be prescribed by the Income-tax Authority. The government will also specify the persons to be registered as reporting entities as well as the nature of information to be reported.

India is one of the jurisdictions, identified as relevant to the CARF by the global forum, that has not yet committed to implement the CARF. So, with the proposed amendment of this new reporting in the tax laws, India has indicated its commitment to implement CARF. India was one of the early adopters of FATCA and CRS reporting, post signing the Intergovernmental Agreement with the United States of America (USA) and the OECD Multilateral Agreement respectively. It has been sharing financial information under these two international agreements with the USA as well as other OECD participating jurisdictions, for CRS, with the objective of combating offshore tax evasion and avoidance and stashing of unaccounted money abroad. Reporting of crypto-assets held / transacted by non-residents will further provide impetus to this cause. Further India would receive information of such crypto assets transacted/ held outside India by resident Indian.