Just last month, the Indian Central Board of Direct Taxes (CBDT) issued a tax notice to 1L cryptocurrency investors. The summon was sent to these investors that ordered them to present the documents and evidence for the questions asked in there.
Any kind of notice or communication one receives from the Income Tax Department could leave any taxpayer worried, more so if it’s a summon.
Word of caution: Don’t panic and/or try to ignore the notice, even if it is wrong. One just needs to justify his income source along with the transactions to the tax department.
Why a notice for bitcoin transactions?
Get an understanding of the notice as to why did the department issued it in the first place. As it has been made clear by the government in February that bitcoin and other cryptocurrencies are illegal tenders, this means any transaction made by using any of these digital currencies is not legal.
The cryptocurrency market is extremely volatile and one makes gains by indulging in their trading as the price surges. However, individuals who made profits didn’t pay any taxes on those gains or declared their income, for that matter.
Now, what needs to be done?
No matter the source of your income, if you have earned it, you got to pay tax on it. Hence, if you made any profits from cryptocurrency investment or trading then you have to pay taxes on it.
There are in total 28 questions that are asked under the summons of section 131 of the Income Tax Act. For instance, it asks for the details of your income source, bank accounts, wallet, crypto exchange in which you have an account, the kind of cryptocurrency you are dealing with among many others.
Due to no clarifications made by the government on taxes, for the moment these are subject to the law of land. The best approach here to stay free from any worries is to pay the maximum rate of tax. Also, make sure that you declare the source of income while filing it. Pay all the dues on your gains in advance before March 15.
A few key points…
The first thing you can do is not to get panicked as this notice needs to be handled carefully. Then simply collect all the required documents along with the information as you would need to submit the documentary evidence that specifies your bitcoin among other cryptocurrency transactions that have been recognized by the summoning.
You are just required to pay all your tax dues and as long as you have done that, you are good to go.
Any income tax notice has a stipulated time period within which you have to submit all the proofs. Try to keep up with this time frame, though you can always ask for more time if you are unable to collect all the documents in time. And you can always seek professional help.
If you have any queries or suggestion, Let us know below in comments!