Income tax department has declared that in response to a nationwide survey depicting more than $3.5 billion worth of transactions being conducted over a period of 17 months, they have sent tax notices to thousands of people dealing in cryptocurrency.
Why is the motive behind “Tax Notice”
Tax officials have confirmed that they have gathered data from nine exchanges in Delhi, Mumbai, Pune, and Bengaluru. The list of investors that have invested in bitcoins along with other virtual currencies involves real estate players, tech-savvy youngsters and jewelers.
All over the world, governments are struggling with how to regulate the trading of cryptocurrencies. Policymakers of several countries are even expected to discuss this matter at the G20 summit in Argentina, in March. The Indian government has repeatedly issued warnings against the investments in digital currency proclaiming them nothing more than just “Ponzi schemes” that may offer unusually high returns to investors.
Though government issued regular warnings, it hasn’t imposed any regulations on the industry so far.
As reported by the media channel Reuters, B.R.Balakrishnan, the director general of investigations at the income tax department in the southern state of Karnataka, mentioned that in order to assess the patterns and penetration of virtual currency trade, the notices were sent to the respective parties.
He has been quoted as saying:
“We cannot turn a blind eye. It would have been disastrous to wait until the final verdict was out on its legality.”
As per the notice, the people who are dealing with bitcoin and other virtual currencies such as ripple and ethereum are asked to give the details of their total holdings along with the source of the funds. These investors will have to pay tax on capital gains from their investment in all kinds of virtual currencies.
Balakrishnan further explained:
“We found that investors were not reflecting it on their tax returns and in many cases, the investment was not accounted for.”
The scenario of cryptocurrency regulations in India
Recently, China, South Korea and Russia among other countries made a lot of news regarding the regulations on cryptocurrencies. As reported by Reuters, an Indian finance ministry official mentioned that a federal committee has been already in the action regarding the possibilities of imposing restrictions on cryptocurrencies.
According to India’s leading bitcoin exchange, Zebpay, about 200,000 users keep on adding every month with an estimated trade volume of approximately $315 million.
As per an official of another bitcoin exchange in New Delhi:
“I don’t think anyone in the government should label our business as a ‘Ponzi scheme’, we are not doing anything illegal.”
However, the biggest concern of government authorities seems to be the fraudulent activities happening in the name of virtual currencies evident from the statement of Pavan Duggal, a Supreme Court lawyer specializing in cybercrimes.
“Considering cryptocurrencies are here to stay, the government must consider granting limited legality while ensuring that these are not used for crypto crimes.”
Tax officials took the help from the experts of blockchain technology and even participated themselves to identify the loopholes.
Let’s see how this step affects the cryptocurrency market of India. Do you think it will completely cripple its cryptocurrency market? Let us know your thought in comments below and follow or write us on twitter and facebook page.
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Sunil is a serial entrepreneur and has been working in blockchain and cryptocurrency space for 2 years now. Previously he co-founded Govt. of India supported startup InThinks and is currently Chief Editor at Coingape and CEO at SquadX, a fintech startup. He has published more than 100 articles on cryptocurrency and blockchain and has assisted a number of ICO’s in their success. He has co-designed blockchain development industrial training and has hosted many interviews in past. Follow him on Twitter at @sharmasunil8114 and reach out to him at sunil (at) coingape.com