Core Insights - India's income tax authorities and the Reserve Bank of India are raising concerns about virtual digital assets, particularly regarding enforcement challenges that hinder the government's ability to track and tax cryptocurrency transactions as the Union Budget approaches [1][2]. Group 1: Enforcement Challenges - Tax authorities highlighted difficulties in tracking crypto transactions due to the technology's features such as borderless transfers and pseudonymous addresses, which create enforcement gaps [2]. - The Finance Ministry aims to curb decentralization and privacy-focused systems, aligning with the Financial Intelligence Unit (FIU) and the Income Tax Department on these issues [2]. Group 2: Regulatory Scrutiny - FIU-registered exchanges will face increased scrutiny due to reports of crypto-laundering, with the Ministry of Home Affairs conducting detailed investigations [3]. - The Tax Department has identified irregularities in centralized exchanges, including misuse of customer funds, extreme leverage, and insider trading [3]. Group 3: Taxation and Budget Plans - Crypto traders in India are subject to a 30% flat tax and a 1% Tax Deducted at Source (TDS), despite the lack of a clear regulatory framework [3]. - The Union Budget for 2026-27 is set to be presented on February 1, 2026, with the Budget Session starting on January 28 [4]. Group 4: Cross-Border Activity - Tax officials noted jurisdictional overlaps in cross-border crypto activities, complicating enforcement, especially for platforms operating overseas or unregistered with the FIU [5]. Group 5: Technological Measures - Last July, authorities announced plans to utilize AI and global data-sharing under the Crypto-Asset Reporting Framework to cross-match TDS data from exchanges with income tax returns, issuing notices for discrepancies exceeding $1,200 (₹1 lakh) [6].