In a major policy shift aimed at tightening oversight on digital assets, the Indian government has proposed a significant amendment in the Union Budget 2025. The new provision brings Virtual Digital Assets (VDAs) under the purview of undisclosed income as defined in the Income Tax Act of 1961. Once enacted, this change will empower tax authorities to treat unreported crypto holdings and transactions as unaccounted income, subject to rigorous scrutiny and steep taxation.
The amendment to Section 158B marks a clear departure from previous regulatory ambiguity, signalling that crypto is no longer beyond the tax department’s radar. Whether you’re holding crypto as an investment or actively trading it across exchanges, the implications are serious. With block assessment provisions coming into play, crypto-related non-disclosures could now invite retrospective investigations and taxation at 60% or more.
This article breaks down what these changes mean, how they’ll impact Indian crypto investors, and what steps you should take to stay compliant in a post-Budget 2025 landscape.
VDA Definition: What Exactly Falls Under It?
The term Virtual Digital Asset (VDA) is defined broadly under Indian tax law, and it covers far more than just cryptocurrencies. With the latest amendments, understanding what qualifies as a VDA is essential for ensuring proper disclosure and tax compliance.
What Qualifies as a VDA?
According to the Income Tax Act, a VDA includes any digital representation of value that is not recognised as Indian or foreign currency and is generated through cryptographic means or similar technology. This includes:
- Cryptocurrencies like Bitcoin, Ethereum, and others
- Non-fungible tokens (NFTs)
- Any token or digital code with an assigned value, tradable or transferable electronically
- Other forms of digital assets that may emerge in future
If you’re investing in or transacting with any digital asset that fits this definition, it falls under the rules applicable to VDAs. This means you are liable for tax on gains, required to deduct TDS (where applicable), and must disclose your holdings in your ITR.
For a deeper dive into how VDAs are taxed, you can refer to our guide on Crypto Tax in India, which outlines the latest rules, tax rates, and reporting obligations for Indian investors.
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What Has Changed in the Income Tax Act?
The 2025 Union Budget has introduced a critical change to how crypto assets are treated under Indian tax laws. With an amendment to Section 158B of the Income Tax Act, Virtual Digital Assets (VDAs) are now officially recognised as part of the definition of undisclosed income.
VDAs Included in Block Assessment Scope
Until now, assets like money, bullion, jewellery, and other valuables were considered undisclosed if not reported in income tax filings. The latest amendment adds VDAs, such as cryptocurrencies and tokens, to this list. This means any unreported crypto income discovered during a tax search can now be assessed under the block assessment procedure.
This inclusion gives the Income Tax Department more power to investigate and tax unreported crypto income found during search operations. Once the Finance Bill 2025 is enacted, the new provision will apply from 1 February 2025, offering tax authorities a broader scope to examine digital asset transactions that were previously out of reach.
What Is Block Assessment?
Block assessment is a framework used during search and seizure operations carried out by the Income Tax Department. Unlike regular assessments, it allows authorities to review and assess income for the previous six assessment years leading up to the year in which the search is conducted.
This means that if a tax search is carried out in 2025, the department can reopen and examine financial records from 2019 to 2024, in addition to the current year. The objective is to identify patterns of tax evasion or underreporting over time, rather than just focusing on a single year.
Read More: Crypto Tax Evasion In India
How Will This Assessment Affect Crypto Investors?
For crypto investors, this change significantly raises the stakes. If unreported crypto holdings or trades are discovered during a search, the Income Tax Department can now bring those earnings under the block assessment process. This makes it possible for the department to go several years back and tax any gains that were not previously declared.
Moreover, any income classified as undisclosed under this framework is liable to be taxed at a flat rate of 60%, along with applicable surcharges and penalties. This could result in a substantial financial burden for investors who have not maintained proper records or failed to disclose their holdings accurately.
How Does The Change Impact Crypto Investors in India?
The inclusion of crypto assets in the definition of undisclosed income has serious implications for investors, whether they are long-term holders or active traders. With block assessment provisions now applicable to Virtual Digital Assets (VDAs), tax authorities have broader powers to scrutinise undeclared crypto activity.
Holding Crypto Assets
If you are simply holding crypto and it appears in your bank records or digital wallet during a tax investigation, the department may ask you to explain the source of funds used to acquire it. Without proper documentation, the asset can be treated as unaccounted income and taxed accordingly.
Trading Without Reporting Gains
If you have actively traded crypto but failed to report the gains in your Income Tax Returns (ITRs), those profits may now fall under the block assessment process. This allows the Income Tax Department to go back and reassess previous years’ gains and tax them at 60% plus applicable surcharges and cess.
Greater Emphasis on Record-Keeping
These changes place greater responsibility on investors to maintain transaction records, disclose earnings, and ensure tax compliance. Without accurate documentation, even legitimate trades and holdings may attract penalties.
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What Should Investors Do Now?
With stricter tax rules now covering crypto, investors must take proactive steps to stay compliant and avoid penalties.
Disclose All Crypto Holdings and Gains
Whether you are holding, buying, or selling digital assets, ensure that all crypto-related income is accurately reported in your Income Tax Returns (ITRs). Non-disclosure could lead to scrutiny under block assessment and a high tax liability.
Maintain Proper Documentation
Keep detailed records of every crypto transaction, including:
- Source of funds used to purchase digital assets
- Trade history and wallet addresses
- Exchange receipts and bank statements
Having this information readily available will help justify the legitimacy of your holdings during any tax assessment.
Use Crypto Tax Tools to Simplify Compliance
Platforms like KoinX can help you:
- Import trades from 300+ multiple exchanges.
- Calculate capital gains and applicable taxes as per ITD rules.
- Generate audit-ready reports for easy tax filing.
So why wait? Join KoinX today to reduce crypto tax filing errors, thereby helping you stay ahead of regulatory changes.
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Conclusion
The inclusion of Virtual Digital Assets under the scope of undisclosed income is a clear signal that crypto transactions are now firmly within the tax net. As the government strengthens its oversight, investors must prioritise accuracy in reporting and maintain proper documentation to avoid future scrutiny.
Managing crypto taxes doesn’t have to be complex. Tools like KoinX can help simplify the process by tracking transactions, calculating gains, and generating compliant tax reports, making it easier to stay ahead of regulatory changes.
