In an effort to further rein in misuse of crypto, government has proposed to include virtual digital asset (VDA) in the definition of undisclosed income for block assessment scheme. This means non-disclosure could lead to tax at 60 per cent besides penalty.
Once the Finance Bill 2025 is enacted, this provision will be made effective from February 1, 2025. The block assessment scheme is a procedure for assessing undisclosed income discovered during a search or requisition. The scheme was revised in July 2024 budget with an aim to streamline tax administration, reduce prolonged litigation, and improve the efficiency of handling search cases.
Section 158B(b) of the Income Tax Act provides an inclusive meaning of ‘undisclosed income’ for the block assessment scheme. It prescribes various assets to be considered undisclosed income if such assets represent, wholly or partly, income or property that has not been or would not have been disclosed in the income tax return. As on date, assets include money, bullion, jewellery, other valuable articles or things, and income based on any entry in books of account, other documents, and transactions.
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Based on a provision of the Finance Bill 2025, virtual digital assets will also be in the scope of undisclosed income. This means if someone has not disclosed earning from or transaction in VDA in the income tax return and that comes into notice during search or seizure, that scheme of block assessment will be made effective from that. Here the ‘block period’ means previous years relevant to six assessment years preceding the previous year in which the search was initiated under the Income Tax Act.
According to Finance Act 2024, there will be one consolidated assessment for the block period. Till block assessment is complete, no further assessment/reassessment proceeding shall take place in respect of the period covered in the block. The Assessing Officer shall assess the ‘total income’ of the assessee, including the undisclosed income which has not been or would not have been disclosed, or any expense, deduction or allowance claimed under this IT Act which is found to be incorrect. The tax shall be charged at 60 per cent for the block period, besides penalty at the rate of 50 per cent.
There are two changes in relation to crypto bill in the Finance Bill 2025. First one is related to furnishing information. Accordingly, reporting entity would be required to furnish information regarding transactions in crypto assets. The amendment will be effective from April 1, 2026. The second one is related to definition of crypto assets. The definition will include any crypto asset that is a digital representation of a value that relies on a cryptographically secured distributed ledger or similar technology to validate and secure transactions within the ambit of a ‘virtual digital asset’ (whether or not already included in the definition of a virtual digital asset). The amendment is effective from the assessment year 2026-27.
Announced in the Union Budget 2022, as on date, VDA includes any information, code, number or token not being Indian or foreign currency, and generated through cryptographic means or others. In other words, it means DAs mean all types of crypto assets, including NFTs, tokens, and cryptocurrencies, but they will not include gift cards or vouchers.
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