Bitcoin’s meteoric rise and unprecedented growth in the past two months has caused government bodies from across the globe to intervene and India remains no exception. India’s tax authority fears that as Bitcoin popularity is growing at a rapid speed, it might trigger the creation of several e-Ponzi schemes and hence to safeguard investors against these risks, the tax department is investigating Bitcoin exchanges operating within the country.
As per the Press Trust of India, the country’s Income Tax Department is carrying out a widespread operation to dig out the suspicious tax evasions by the exchange customers. As per Reuters, a spokesperson – Surbhi Ahluwalia – from the Income Tax Department has confirmed that the agency has visited nine major cryptocurrencies operating in metro cities like Pune, Bengaluru, Kochi, Hyderabad, and Delhi.
Ahluwalia told Reuters “We are looking at collecting information about modus-operandi of bitcoin exchanges, investors, their source of investment and possibility of collecting tax..”
The survey was conducted under the Section 133A of the Indian Income Tax Act and the department officials familiar with the matter said that the search was conducted to recover information of the cryptocurrency investors, their emails, registered and linked bank accounts, and other similar data. The team of officials was well equipped with professional software tools which could recover all the financial data and inputs of the exchanges.
A senior official from the tax department was cited saying: “Out of these, about 8-10 lakh [800,000-1,000,000] entities would be active for transactions. However, the operations are still on and final findings will emerge later.”
Previously, India’s Central Bank – The Reserve Bank of India (RBI) – has warned several times against the associated risks involved while investing in cryptocurrencies and said that looking to a sudden rise in the valuations of Bitcoin, the authorities fear a swelling bubble that could burst any point of time. RBI has also warned that the onus of the risk associated with investing in cryptos lies solely with the individual, as RBI is no way is responsible for the outcome until it decides to grant licenses of cryptocurrency operation.
Reuters writes that “The tax official declined to comment on the central bank’s concerns, saying the tax department was looking only into the tax implications.” The tax department is seeking cases where a large amount of “black money” is said to have been siphoned off through the cryptocurrency route.
Last year in November 2016, the government has performed demonetization of higher currency notes, in a bid to crackdown the black money and to shift towards a digital economy. Post demonetization, it was found that there was a huge influx of investors buying Bitcoins and other cryptocurrencies. During this time, the major exchanges have reported record high new-users registrations.
Last month in November 2017, the Supreme Court of India issued a notice to the central bank to work with the finance ministry and create a regulatory framework for cryptocurrency operations in the country. Soon after this, India’s finance minister Arun Jaitley said: “Recommendations are being worked at. The government’s position is clear, we don’t recognize this as legal currency as of now.”