India Crypto Tax Gap and Israel's VDP Miss: Enforcement Implications for Accounting Firms and CFOs
Two separate government findings, one from India and one from Israel, have landed within days of each other and together they paint a sharp picture of where crypto tax enforcement is heading globally. India's tax department has identified a significant compliance shortfall among domestic crypto traders, while Israel's voluntary disclosure program for crypto profits has attracted a fraction of the participation authorities anticipated. For accounting firms and CFOs advising clients across either jurisdiction, these are not background developments. They are active enforcement signals that demand a practical response now.
India: The Scale of the Reporting Gap
According to government documents cited by Reuters, India's tax department found that fewer than one in four of the roughly 645,000 individuals who made crypto transactions in the year ending March 2023 actually reported those transactions on their tax returns. That is a non-compliance rate of over 75 percent on the reported population alone, and the real figure is almost certainly larger once untracked activity is included.
Why the gap is so wide
The tax department reportedly flagged three specific structural reasons for the shortfall: the use of offshore exchanges that fall outside domestic reporting obligations, self-custodied wallets where there is no intermediary to report, and peer-to-peer trades that leave no automatically reportable trail. Each of these channels is, by design or by accident, harder to match against income tax filings than on-exchange transactions on regulated domestic platforms.
The same documents reportedly estimated that India had approximately 39 million crypto traders, with holdings exceeding $2.1 billion at end of May. That figure puts the 645,000 filers who transacted in the 2022-23 period into perspective: the transacting population visible to the department represented a small slice of a far larger market.
RBI pressure adds a second layer
The tax findings arrive days after the Reserve Bank of India on 3 July urged lawmakers to ring-fence banks and financial institutions from cryptocurrencies and privately issued stablecoins. The RBI reportedly stated that outright prohibition remains a recognised policy option and recommended barring digital assets from use in payments and settlements. That position means firms operating in India are managing two converging risks simultaneously: a tax authority that is actively building an enforcement picture, and a central bank that is pushing the legislative agenda toward tighter restriction rather than accommodation. The broader RBI crypto policy context has been building for some time, and this enforcement data now gives the central bank's position a revenue-loss argument to match its financial-stability one.
India ranked first in the 2025 Global Crypto Adoption Index, which means the gap between adoption and compliance is not a niche problem. It is the dominant characteristic of the market right now, and any firm advising Indian resident clients on digital assets needs to treat that gap as a live liability.
Israel: A Voluntary Disclosure Program That Fell Short
Israel's situation illustrates a different failure mode. The Israel Tax Authority launched a voluntary disclosure program in August 2025, offering criminal immunity to taxpayers who came forward to declare previously unreported crypto profits. The ITA reportedly expected collections of between 2 billion and 3 billion Israeli shekels (approximately $650 million to $986 million).
The participation numbers
By early June 2026, only 289 disclosure requests had been submitted since the program opened. The disclosed capital totalled 676.5 million shekels, with estimated tax due of just 40.9 million shekels. That is a sharp miss against the authority's own expectations, and it leaves the underlying crypto tax gap largely unclosed.
Tax professionals cited by local business outlet Globes attributed the low take-up to a specific structural feature: the program did not offer an anonymous disclosure track. Without anonymity, crypto holders faced the prospect of identifying themselves to the authority even under an immunity arrangement, and many appear to have concluded that the risk outweighed the benefit. That design choice, whether intentional or an oversight, effectively filtered out a large portion of the population the program was meant to reach.
What the ITA is likely to do next
When a voluntary program underperforms this significantly, the next phase is typically involuntary. Authorities that have built a case for a large tax gap, as the ITA appears to have done when setting its collection target, generally move toward data-driven enforcement: exchange reporting mandates, information sharing agreements, or direct investigation of known high-value holders. The low disclosure rate does not make the gap disappear; it makes the remaining population more exposed.
Accounting Implications for Firms and CFOs
Both situations carry direct accounting and reporting consequences that go beyond the compliance teams and land squarely on whoever is responsible for preparing financial statements and advising on tax positions.
Transaction-level records are the baseline requirement
In India, the tax department's focus on offshore exchanges, P2P trades, and private wallets means that self-reported figures unsupported by complete transaction histories will not hold up under scrutiny. The 30 percent flat tax on crypto gains introduced in the Finance Act 2022, combined with the 1 percent TDS on transfers above specified thresholds, creates a multi-layer reporting obligation. If a client's records do not map every acquisition and disposal to the relevant cost basis, the position is underdocumentable regardless of how honest the intention was.
For CFOs at entities that hold digital assets on the balance sheet, this means ensuring that the digital asset accounting software in use actually captures wallet-level and exchange-level data, not just aggregate portfolio values. Reconciliation between on-chain activity and general ledger entries needs to be granular enough to withstand an inquiry, and that standard is higher for India right now given that the tax department is actively building its enforcement database.
Unreported positions are a financial statement risk
For firms in Israel, the voluntary disclosure miss creates a specific problem for audit and advisory engagements. If a client held crypto and did not participate in the VDP, that position may carry an unrecognised tax liability. Under IFRS, uncertain tax positions are assessed under IAS 12 and IFRIC 23, which require that the probability of a tax authority accepting a position be evaluated, and that a liability be recognised where it is more likely than not that the authority would not accept the reported treatment. A tax gap this visible, combined with a stated enforcement intent, shifts the probability analysis toward recognition.
Firms should review any client with Israeli crypto holdings and assess whether an IFRIC 23 provision is warranted. The 289 disclosures submitted represent a data point the ITA holds; it knows the program underperformed and will need to justify its original estimate through enforcement activity. That creates a meaningful probability of assessment for holders who stayed out.
Reliable crypto bookkeeping software is a prerequisite, not an optional upgrade
The data from both jurisdictions underlines a point that has become difficult to argue against: in markets where tax authorities are actively cross-referencing exchange data, blockchain analytics, and TDS reporting (India) or building voluntary disclosure baselines (Israel), the quality of a client's underlying records determines their exposure. Crypto bookkeeping software that automates cost-basis tracking, flags wash-sale equivalents under local rules, and produces audit-ready reports is no longer a convenience feature. It is the minimum standard for a defensible position.
For accounting firms, the practical implication is that onboarding any new client with Indian or Israeli crypto exposure requires a records-quality assessment before any tax or advisory work proceeds. If the records are thin, the engagement scope must include remediation. For a broader view of how tax-gap enforcement is developing in parallel across other emerging markets, the South Africa SARS crypto tax enforcement approach provides a useful comparison: regulators globally are moving from guidance to active gap-closing, and the sequencing is accelerating.
AML Considerations
There is an AML dimension to the India findings that is easy to overlook when the framing is primarily about tax. P2P trades and private wallets are not just hard to tax; they are also the channels that financial intelligence units find hardest to monitor. The RBI's call for banks to remain insulated from crypto activity reflects, in part, a concern that crypto flows passing through unregulated intermediaries create AML blind spots. For accounting firms conducting client due diligence, the combination of a high-adoption market, a large non-compliant population, and a central bank pushing for tighter controls is a signal to revisit the CDD procedures applied to Indian crypto clients, particularly those who route activity through offshore platforms or self-custody arrangements.
Practical Next Steps for Firms
Given what both authorities have now put on the record, the following actions are appropriate for firms with exposure in either jurisdiction.
For India-facing engagements
Confirm that every Indian resident client with crypto activity in FY2022-23 onward has filed the relevant ITR schedule disclosing virtual digital asset transactions. Review whether TDS obligations under Section 194S were correctly applied and remitted. Assess whether offshore exchange holdings were disclosed under the foreign asset schedule where applicable. For corporate clients, check whether digital assets on the balance sheet are valued and disclosed consistently with the Income Tax Act's treatment of virtual digital assets.
For Israel-facing engagements
Identify which clients hold or have disposed of crypto and did not participate in the voluntary disclosure program. Conduct an IFRIC 23 assessment for each such client and document the conclusion. Consider whether it is still appropriate for clients who missed the VDP window to approach the ITA under any remaining corrective filing mechanism before involuntary enforcement begins. Ensure that digital asset accounting software records are complete enough to reconstruct the tax position if an inquiry is opened.
FAQ
What tax rate applies to crypto gains in India?
Under the Finance Act 2022, gains from the transfer of virtual digital assets are taxed at a flat rate of 30 percent, with no deduction for expenses other than the cost of acquisition. A 1 percent tax deducted at source applies to transfers above specified thresholds.
What was Israel's voluntary disclosure program and why did it matter?
The Israel Tax Authority launched the program in August 2025 to allow holders of previously undisclosed crypto profits to come forward in exchange for criminal immunity. The ITA had projected collections of 2 to 3 billion shekels. By early June 2026, only 289 requests had been filed with estimated tax due of 40.9 million shekels, well short of the target. Tax experts cited the absence of an anonymous disclosure track as a key deterrent.
What is IFRIC 23 and why is it relevant to Israeli crypto holders?
IFRIC 23 is the IASB interpretation that addresses how to account for uncertainty over income tax treatments under IAS 12. Where it is more likely than not that a tax authority would not accept a reported tax position, an entity must recognise a liability. Given the ITA's stated expectations and the low VDP participation rate, firms should assess whether clients with unreported Israeli crypto gains need an IFRIC 23 provision in their financial statements.
Why does the RBI's position matter for accounting firms?
The Reserve Bank of India on 3 July 2025 urged lawmakers to keep banks and financial institutions insulated from cryptocurrencies and privately issued stablecoins, and stated that prohibition remains a recognised policy option. If restrictions tighten, the channels through which firms currently handle client crypto flows may be curtailed, which affects both operational planning and the going-concern assumptions embedded in any entity that relies on crypto-related revenue or holds digital assets.
How should firms assess record quality for Indian crypto clients?
The minimum requirement is a complete transaction history covering every acquisition, disposal, and transfer, mapped to cost basis and matched to TDS certificates where applicable. Offshore exchange activity and wallet transfers require on-chain data as the primary source. Any gaps in records should be treated as a remediation task before the engagement proceeds, since the Indian tax department is actively cross-referencing exchange data and TDS returns against filed disclosures.
Source: Cointelegraph