In the Budget of 2025, the finance minister proposed an amendment to Section 158B of the Income Tax Act, 1961 (ITA) to include virtual digital assets in the definition of undisclosed income. This means that if, during a search proceeding, an individual’s income from cryptocurrencies is unearthed and found to be unreported, such income will now be subject to block assessment.
The New Income Tax Bill 2025 also covers the definition of undisclosed income under Section 301. This marks a shift in how tax authorities will handle crypto transactions.
What is block assessment?
Block assessment is a special mechanism used by the tax department when unreported or undisclosed income is discovered during searches or investigations. Instead of merely taxing the uncovered income under normal assessment procedures, block assessment empowers the income tax department to conduct scrutiny for six assessment years preceding the year in which such a search is initiated or conducted. This extended scrutiny allows tax authorities to assess patterns of non-disclosure and bring to tax any income that has escaped assessment.
Impact on crypto holders
The inclusion of VDAs under Section 158B has two major implications. If an individual is merely holding cryptocurrency without actively trading it, tax officials may demand an explanation of the source of funds used to acquire the digital assets.
If a taxpayer has been actively trading cryptocurrencies, any gains—whether short-term or long-term—will now be assessed under the block assessment framework. So, if profits from crypto trading have not been disclosed in tax filings, the entire earnings will be treated as unaccounted income. Any undisclosed income unearthed under this section is taxable at the rate of 60%.
Investment loses charm
The government’s move sends a clear message—crypto is no longer an invisible asset class when it comes to taxation. Whether someone is holding or trading digital assets, there is an increasing need for transparency and compliance. Investors must ensure they maintain proper records of their crypto transactions to avoid falling into the tax net unexpectedly.
The fear of stringent tax scrutiny and higher tax may also discourage individuals from keeping undeclared digital assets. On the other hand, it could push crypto investors towards greater transparency and formal tax compliance.
The writer is partner, Nangia & Co. Inputs from Neetu Brahma
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