How India’s Income Tax Department Used AI to Crack Down on Crypto Evasion

India’s Income Tax Department has successfully recovered ₹437 crore from cryptocurrency transactions in FY 2022–2023 by deploying a sophisticated blend of artificial intelligence (AI), machine learning (ML), and digital forensics. Here's how they did it:

Tech-Driven Enforcement Strategy

AI & Machine Learning Analytics

• Used to detect anomalies and patterns in crypto transactions.
• Compared Tax Deducted at Source (TDS) filings from crypto exchanges with individual income tax returns.
• Discrepancies over ₹1 lakh triggered automated alerts to non-compliant taxpayers.

Digital Forensics & Blockchain Analysis

• Tax officials trained to trace wallet addresses and link them to KYC data.
• Collaborated with institutions like National Forensic Science University (NFSU), Goa for capacity-building.
• Project Insight & Non-Filer Monitoring System (NMS)
• These systems correlated internal databases with reported income to flag under-reporting.
• Enabled targeted scrutiny without intrusive audits.

Results & Impact

Metric	FY 2021–22	FY 2022–23
Tax from Crypto (VDAs)	₹269.09 crore	₹437 crore
Growth Rate	—	+63%
Notices Sent (Discrepancy > ₹1L)	—	Thousands

The 63% year-on-year growth in crypto tax collection signals rising adoption and tighter compliance.

Over 42,000 cases are reportedly under investigation for unreported VDA income.

Global Alignment & Future Plans

India is aligning with the OECD’s Crypto-Asset Reporting Framework (CARF) for cross-border transparency.

The upcoming Income Tax Bill (2025) aims to strengthen real-time monitoring systems and close offshore loopholes.