The Income Tax department of India has issued notices to 400K-500K HNIs indulged in Bitcoin trading under the annexure to summon under Section 131 of the Income Tax Act. The IT department issued these notices to understand the sources of their income in order to link the same with their gains in Bitcoin trading.

As per the notice, reviewed by Inc42, the Bitcoin traders have been asked to attend the office of the IT department to produce the books of accounts or the documents including – details of investments done by the traders during FY 2015-16, 2016-17 and 2017-18 along with supporting documents. 

The Bitcoin traders have also been asked to provide the bank statements of all the bank accounts maintained by the HNIs personally, their family members and concerns associated with them.

Apart from this, they have to submit the computation of gain/loss arise out of investments done during the above mentioned period.

The notice also mentions that – in case, the person misses to attend or submit evidence or to produce the books of accounts or documents, a penalty of INR 10,000 will be imposed under setion 272 A(1)(C) of the Income Tax Act, 1961. 

As per a Mint report, the department is looking details of bitcoin investments done during the demonetisation period i.e. November to December 2016.

On December 19, Inc42 had reported over the Income Tax department collating and analysing 2 Mn Bitcoin users’ data received from major Bitcoin exchanges across the country. After surveying major cryptocurrency exchanges in the country on December 13.

The Income Tax department, in its notice, has asked the Bitcoin traders to share details of their investments in India and abroad, their source and their trading details in Bitcoin and other cryptocurrencies between specific dates.

The department has asked these HNIs to reveal their cryptocurrency wallet details i.e. the number of wallets they have in India or abroad, transactions through these wallets and source of the money deposited in these wallets.

Since demonetisation, the government has taken a series of measures to curb the black money flow in the country. Despite SEBI having raised the necessity of regulating Bitcoins, the government, and other authorities like Income tax department, ED and RBI are trying to find a solution under the existing norms.

SEBI Chairman Ajay Tyagi recently mentioned that Bitcoins, and cryptocurrencies in general, cannot be ignored. Observing that cryptocurrencies have not posed any systemic risk to the economy, Tyagi stated that a government panel is currently looking into the much-debated topic of cryptocurrency regulation.

Under Section 131 of Income Tax Act, an Income Tax Commissioner has been given the right to summon a citizen to disclose their vested interests. The Commissioner can enforce the attendance of any person, including any officer of a banking company and examining him on oath, compelling the production of books of account and other documents.

After Bitcoin, ICOs Next On Income Tax Department Radar

After Bitcoin traders, the IT department is now closely watching the ICO developments in the country. Speaking to Inc42, a Direct Tax lawyer at the Supreme Court of India on condition of anonymity said,

“The IT department is currently suspecting most of the companies offering ICOs as shell companies. This is precise because the valuation and investments made by these companies are highly debatable. The investments come under Section 56 (II), however, such companies or investors investing in terms of cryptocurrencies are not paying their taxes, as the valuation of many of these companies is not done by independent chartered accountants.”

India has witnessed a number of Ponzi schemes that have been busted by the police department which includes Onecoin’s fraud in Navi Mumbai and KashhCoins in Delhi.

Looking at the current scenario and all the fuss created around the cryptocurrency trading in the country, the Cybercrime cell of Delhi Police even has a dedicated page on Bitcoins. The page reiterates the RBI’s clarifications given over the Bitcoin and other cryptocurrencies’ trading. It says,

“The legal framework regarding crypto-currencies is yet to be laid down. RBI has not given any licence/authorization to any entity/company to deal with any virtual currency. In the absence of a legal framework, it is not advisable for citizens to deal with virtual currencies such as Bitcoins. These currencies are normally used by criminals operating on the dark web or the hidden web. Legal, bonafide businesses do not normally use Bitcoins. Therefore any request for a business transaction in Bitcoins should raise suspicious and should be avoided.”

The government has not provided any timeline regarding the regulations of Bitcoins and other cryptocurrencies. However, the recent development of income tax department issuing notices and concerns raised by different government bodies make this clear that the government won’t let anyone hide behind the pseudonymous cryptocurrency.