The Indian Ministry of Finance Office of the Deputy Director of Income Tax has been sending out letters to Indians who are dealing in cryptocurrencies. These letters contain 26 questions that range from the source of income of the taxpayer to the number of cryptocurrencies the person is dealing in and details of the wallet they are using.
One of the questions asked the user to give details of the wallet they are using along with the ID/number of the account in the wallet. They also asked about the balance in the wallets of the user as well as balance in the account of their family members.
Another question inquired about the lifetime earnings and tradings that they have done on these exchange platforms along with the details as well as information of the person who was involved in the dealing. The letter also warned the receivers that if they omit information intentionally, then a fine of Rs.10,000 will be imposed on them under section 272A of the Income Tax Act,1961.
What should the crypto traders do?
Anoush Bhasin, the founder of Quagmire Consulting, a firm that specializes in crypto tax solutions, stated that the notice is issued by the Investigation Division of the Income Tax Department. He further added that these notices are released when they suspect someone is hiding some information from the government. In this case, the crypto transactions were done but not mentioned in the files. He suggested that people should provide complete details and be cooperative with the officials.
Varun Sethi, the founder of Blockchain Lawyer, said that people are getting these letters because India’s tax laws cover all kinds of incomes that means legal, undisclosed, disclosed and illegal incomes as well. He asked the people to ensure compliance and also asked them to pay all the due taxes, even on the gains that were made by using crypto trades.
How are Crypto Assets taxed in India?
Bhasin also mentioned that any income that is made by dealing in cryptocurrencies is taxable. He added that if someone is into buying and selling things frequently to make a profit off of it, then is considered as a trader and he has to pay taxes as a business. For those who have held the assets for a long time as an investment will be considered as an investor who is liable to pay capital gains tax.
The Ongoing Tax Issue
A social media influencer with the Twitter handle as “Indian Cryptogirl” informed that people have been getting such letters from the past 2 years. From personal experience, she mentioned that if you go ahead and be transparent about how you made the purchases, you’ll be asked to go with a warning. But only if the transactions are within the range of your earnings.
Nischal Shetty, CEO of a Wazirx remarked that it’s interesting to see how the Income Tax department has done some good work to understand the concept of crypto trading. He is still uncertain of how authentic the letter is, but he still believes that there is nothing to worry about and that people should be honest about everything.
Tax Laws and Crypto Proposal
The Indian government is yet to decide whether the usage of cryptocurrencies should be banned or not. The interministerial committee(IMC) tasked with studying the cryptocurrency, and its aspects have handed out a report and drafted a bill for the government to research and work on.
Meanwhile, many people from Indian crypto community have made efforts to show the lawmakers how flawed the IMC report is, and they hope that the government will go ahead with the suggested draft bill to ban cryptocurrencies. Even if we face a ban, taxes will still be applied on cryptocurrency income and the chase for unaccounted and untaxed income.
