India’s use of artificial intelligence to track virtual digital assets (VDAs) is yielding results.
According to a recent update to Parliament, the Income Tax Department has collected ₹437 crore in taxes from cryptocurrency transactions by deploying AI and data analytics to identify tax evaders.
The government is integrating machine learning models and digital forensics with exchange data to ensure better traceability of virtual assets, underscoring its commitment to strengthening tax compliance in the digital asset market.
AI tools and TDS data fuel crackdown on crypto evasion
The Central Board of Direct Taxes (CBDT) has confirmed that India is using AI to cross-reference Tax Deducted at Source (TDS) filings from cryptocurrency exchanges.
These efforts target mismatches and suspicious trading activity involving crypto assets.
The government’s AI systems help compare user-provided information with platform-submitted reports, revealing gaps in disclosure or payment.
In the financial year 2022–2023 alone, this process enabled authorities to collect ₹437 crore from income derived through VDAs.
The use of AI is part of a broader digital surveillance effort, which also includes machine learning to detect unusual patterns and digital forensics to trace on-chain activity.
Crypto-Asset Reporting Framework aligns India with global tax standards
Alongside AI initiatives, India has introduced the Crypto-Asset Reporting Framework (CARF), a global tax compliance model proposed by the OECD.
CARF enables automatic exchange of information among participating countries regarding crypto transactions and user activity.
The goal is to bring transparency to cross-border digital asset flows, reducing regulatory arbitrage.
India’s version of the CARF involves direct data sharing between platforms and the tax department.
This aligns with the country’s participation in international tax information agreements and strengthens compliance with evolving global standards.
By incorporating CARF, India aims to close the loopholes that previously enabled investors to move digital assets undetected across jurisdictions.
Tax technology investments expand as wallet visibility improves
The government’s recent developments are part of a broader effort to modernise tax enforcement tools for digital assets.
With the anonymity of crypto wallets presenting challenges in the past, Indian authorities are now focused on enhancing wallet visibility.
Technologies that can trace peer-to-peer transactions, link wallet addresses to identity documents, and match KYC data with trading patterns are being deployed.
This initiative aims to reduce the reliance on self-reporting by crypto users.
By using automated data exchange and AI-driven transaction monitoring, tax authorities can now flag underreported or concealed income from crypto trades with greater accuracy.
India builds a digital compliance model for the crypto era
In 2025, the Indian government has ramped up efforts to create a robust regulatory and tax infrastructure around virtual digital assets.
After introducing a flat 30% tax on crypto income and 1% TDS on transactions in 2022, authorities have now shifted focus to enforcement.
With AI tools now part of the enforcement strategy, India is signalling a long-term commitment to regulating digital assets through transparency, traceability, and international alignment.
These efforts suggest that the days of anonymous trading and unreported gains are diminishing.
While the crypto sector continues to evolve, India’s tax department is positioning itself to keep pace through the use of data intelligence and collaborative frameworks.
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