Unreported Cryptocurrency Investments Under Heavy Scrutiny of Indian Tax Authority
Cryptocurrency inventors and traders in India are now under the heavy scrutiny of the country’s Income Tax Department. There has been a huge surge in the crypto investments by Indian traders and as per a national survey, cryptocurrency transactions in the past 1.5 years amount to more than $3.5 billion.
On the suspicion of tax evasion, authorities from the Indian Income Tax Department are seen collecting data from the exchanges over the past month. As per the latest report from Reuters, last Friday, the Income tax department has sent notices to “tens of thousands of people dealing with cryptocurrency” after a survey across major cities like Mumbai, Delhi, Bengaluru, Pune and others.
B.R. Balakrishnan, a director general of investigations at the income tax department in Karnataka said that majority of investors who have parked their money in cryptocurrency investments are “tech-savvy young investors, real estate players, and jewelers.” He further added that “We cannot turn a blind eye. It would have been disastrous to wait until the final verdict was out on its legality. We found that investors were not reflecting it [cryptocurrency gains] on their tax returns and in many cases, the investment was not accounted for.”
The report from Reuters shows that crypto investors are asked by the tax department to pay taxes on their capital gains. The investors are also further asked to disclose holdings along with the source of their funds.
Indian government since the beginning has been warning crypto investors about the potential risks it poses, with Finance Minister ‘Arun Jaitley’ repeatedly telling that cryptocurrencies are not considered as legal tender in the country. This scenario is not just in India. We have recently seen major crypto markets like South Korea and China bringing several strict regulatory measures sighting the use of cryptocurrencies in illicit activities of money laundering and tax evasion.
A recent report from the country’s local media outlet ‘The Indian Express’ shows that the tax department from its survey has also revealed the active number of cryptocurrency traders in the country.
A tax official was quoted saying “A key factor which helped the department track the total number of investors in the cryptocurrency market was the strong KYC policy (Know Your Customer) followed by the currency exchanges. While there are 25 lakh (2,500,000) people registered to trade in cryptocurrencies, only 6 lakh (600,000) have provided the KYC details that are mandatory for trading, and only these people have traded on the exchanges.”
However, in spite of several warning coming from the Indian government, the interest in cryptocurrency purchase within investors remains strong. Majority of the exchanges have seen growth in registrations of new user accounts.
It remains to be seen that how will the government of India will handle this matter and whether it too will introduce any regulatory frameworks to reduce the interest for cryptocurrency purchases among its investors.