Bitcoin & Cryptocurrency Taxation Under the Black Money Act

Bitcoin and cryptocurrency investors in India—especially NRIs and returning residents—often assume that crypto’s decentralised and virtual nature keeps it outside the scope of traditional tax laws. A recent ITAT Pune ruling decisively dismantles this assumption.

The Tribunal has categorically held that Bitcoin income routed through undisclosed foreign bank accounts qualifies as “undisclosed foreign income” under the Black Money (Undisclosed Foreign Income and Assets) Act, 2015.

This judgment is a watershed moment in India’s crypto-tax jurisprudence and carries serious compliance implications.

Case Background: Bitcoin Trading Through a Foreign Bank Account

In this case:

• The taxpayer was an Indian tax resident
• A foreign bank account (Fiji) was maintained
• Large inward remittances were received in January 2017
• These credits were linked to Bitcoin trading
• The foreign bank account and related income were not disclosed in Schedule FA of the Indian income-tax return

Based on information received from international sources, proceedings were initiated under the Black Money Act (BMA).

The Central Question: Where Is Bitcoin “Located” for Tax Purposes?

One of the most important arguments raised was that:

• Bitcoin is a virtual, intangible asset
• It has no fixed geographical location
• Therefore, income from Bitcoin should not be treated as “foreign income”

ITAT’s Clear Rejection of This Argument

The Tribunal rejected this contention and laid down a critical principle:

The determining factor is not where Bitcoin exists digitally, but where the banking channel receiving the proceeds is located.

Bitcoin Income Routed Through Foreign Bank Accounts = Foreign Income

The ITAT held that:

• Bitcoin trading can be executed from anywhere in the world
• However, when sale proceeds are credited into a foreign bank account, the income is deemed to be earned outside India
• Such income squarely falls within the scope of “undisclosed foreign income” under Section 2(12) read with Section 3 of the Black Money Act

Why This Matters

Even if:

• The crypto exchange is overseas
• The wallet is decentralised
• The trading is algorithmic or automated

Foreign bank accounts act as the jurisdictional anchor for taxability under BMA

Bitcoin Is Not Immune Just Because It Is Virtual

A crucial takeaway from the ruling is that Bitcoin’s virtual nature does not offer any tax shield.

The Tribunal observed that:

• The economic reality of the transaction matters
• Banking trails override technological abstractions
• Once crypto profits enter an undisclosed foreign bank account, the Black Money Act is triggered

This approach aligns crypto taxation with substance-over-form principles.

How Bitcoin Income Is Computed Under the Black Money Act

The Assessing Officer computed income based on:

• Sale value of Bitcoins
• Less cost of acquisition

However, all expenses were disallowed.

Reason: Section 5(1) of the Black Money Act

The Act expressly prohibits:

• Any deduction
• Any allowance
• Any set-off of losses

Even if such deductions are otherwise permissible under the Income-tax Act.

Transaction costs, legal fees, travel expenses, exchange charges — none are deductible under BMA

Asset vs Income: A Subtle but Important Distinction

The Tribunal clarified an important sequencing concept:

• Bitcoin trading generates income first
• If such income remains parked in a foreign bank account,
• It subsequently assumes the character of a foreign asset

This distinction became decisive in determining:

• Correct year of taxation for foreign assets under Double Tax Avoidance Agreement Consultancy

But it did not dilute the taxability of Bitcoin income

Partial Relief — But Not on Bitcoin Taxation

The ITAT granted relief by deleting the addition relating to the foreign bank account balance, but only because:

• The asset was taxed in the wrong assessment year

This was a technical jurisdictional relief
The Tribunal fully upheld the taxability of Bitcoin income under the Black Money Act.

Penalties: Where Crypto Non-Compliance Becomes Extremely Costly

Penalty Under Section 41 (300% of Tax)

• Penalty relating to deleted foreign asset was removed
• Penalty linked to Bitcoin income was upheld

Penalty Under Section 43 – Flat ₹10,00,000

The Tribunal confirmed the levy of:

• ₹10 lakh penalty for failure to disclose foreign bank account and foreign income in Schedule FA

The ruling makes it clear:

• Complexity of crypto transactions is not an excuse
• Lack of technical knowledge is not a defence
• Disclosure obligations are absolute

Key Compliance Lessons for Bitcoin & Crypto Investors

• Bitcoin routed through foreign bank accounts attracts the Black Money Act
• Location of wallet or blockchain is irrelevant
• Banking trail determines foreign income status
• No deductions are allowed under BMA
• Schedule FA disclosure is mandatory
• Penalties can exceed the income itself

Implications for NRIs and Returning Residents

This ruling is particularly significant for:

• NRIs trading crypto through overseas exchanges
• Returning residents who retained foreign accounts
• Individuals who traded crypto before becoming Indian residents
• Persons who assumed crypto profits are governed only by the Income-tax Act

Black Money Act exposure under NRI taxation can arise even without intent to evade tax

Conclusion: Bitcoin Is Firmly Within the Black Money Act’s Net

This ITAT Pune ruling decisively establishes that cryptocurrency transactions are not beyond the reach of India’s strict foreign asset regime.

If Bitcoin income:

• Flows through undisclosed foreign bank accounts, and
• Is not reported correctly,

The Black Money Act will apply — with 30% tax, no deductions, and severe penalties.

Crypto investors must now move from assumptions to structured compliance.

Need Expert Advice on Crypto & Foreign Asset Compliance?

Dinesh Aarjav & Associates specialises in:

• Bitcoin & crypto taxation for NRIs
• Black Money Act advisory & litigation
• Schedule FA disclosures
• Structuring crypto exits for NRI returning to india

Act before notices are issued — under BMA, timing is everything.

Also read:

Madras High Court Recognises Cryptocurrency as Property: What This Means for Investors, Exchanges, and the Future of Digital Assets in India

Trading in US Futures & Options After Returning to India: FEMA, Tax & Compliance Explained

Foreign Tax Credit for NRIs and RNORs: ITAT Delhi’s Landmark Ruling in Aditya Khanna vs ITO

Supreme Court Caps TDS on Foreign Remittances at 10% Under DTAA | Section 206AA Cannot Override Treaty Benefits