Indian Tax Authority Sends Probing Questions to Crypto Owners - Experts Weigh In

As the Indian government deliberates on the country’s crypto policy, the tax authority continues to send out letters with lengthy, probing questions to crypto owners. News.Bitcoin.com talked to industry experts to find out the implications of these letters, what people can do when receiving them, and how crypto assets are taxed in India.

Also read: Indian Finance Minister Addresses Crypto Proposal – Industry Responds

Government Sending Tax Letters to Crypto Owners

The Indian Ministry of Finance’s Office of the Deputy Director of Income Tax has reportedly been sending letters to Indians asking a long list of questions regarding their dealings in cryptocurrencies. Twitter handle Indiabits recently shared one of these letters which comprises 26 probing questions, ranging from sources of income to the names of the cryptocurrencies the taxpayer deals in and details of hardware wallets.

“Furnish the details of all the wallets you are using along with their unique ID/number” was one question. The letter requests information on the taxpayer’s hardware wallets, including their balances, as well as details of wallets owned by the taxpayer’s family members on crypto exchanges both in India and abroad. One question reads:

Please state whether you are buying / selling bitcoins and other cryptocurrencies from websites like Poloniex.com, Coinbase.com, Bittrex.com or any other websites registered out of India.

Another question concerns all income received in cryptocurrencies. “Have you received any bitcoins / cryptocurrency in lieu of any sales made / services rendered / exports made outside India? Please furnish the details of such transactions along with the details of the person making such payments and his wallet / blockchain public ID details.”

The letter also warns that a fine would be levied for willful omissions. “If you intentionally omit to so attend and give evidence or produce the books of accounts of documents, a fine up to Rs. 10,000/- [~$140.97] may be imposed upon you under section 272A of the Income Tax Act, 1961.”

What Crypto Traders Should Do

Anoush Bhasin, founder of Quagmire Consulting which specializes in crypto tax solutions, explained to news.Bitcoin.com Tuesday: “The notice has been issued by the Investigation Division of the Income Tax Department. Usually, such notices are issued when the taxman has reason to believe that a person has concealed or is likely to conceal a particular income.” He believes that “It is probable that the taxman became aware of some information which makes him suspect that crypto transactions were undertaken and probably not reported in the tax return.”

Bhasin suggested that “Anybody who has received such a notice should not take it lightly.” Affirming that “One should provide complete information as required and extend full cooperation during the hearings,” he clarified:

Not complying with the notice or furnishing incomplete / inaccurate information may lead to the taxman conducting a Search & Seizure operation.

Varun Sethi, founder of Blockchain Lawyer, shared with news.Bitcoin.com that people are receiving these letters because India’s tax laws cover “all types of incomes — Legal, undisclosed, disclosed, illegal incomes. Thereby the levy of taxes on gains on cryptos is a legit exercise.”

He also expressed that anyone receiving this type of notice should ensure compliance. “With the tax return filing due date nearing (Aug 31, 2019) the taxpayers should pay taxes on gains made for the cryptos trades. Though there isn’t any clear field for the disclosure of the specifically crypto taxes yet it is possible and necessary to disclose the gains made and then pay taxes thereof.”

How Crypto Assets Are Taxed in India

Bhasin further explained to news.Bitcoin.com that “Income earned from dealing in crypto assets is taxable,” noting that “the legal status of an income is of no consequence to the applicability of tax laws in India.”

He elaborated, “In case you buy and sell frequently, with the purpose of profiting off daily fluctuations in prices, you will be categorised as a trader and liable to pay taxes as a business.” As for miners, “the mining operations will be considered a commercial undertaking and therefore be subject to tax as a business,” Bhasin described:

In case you have bought and held crypto assets for a considerable period of time, as a means of investment (aka hodling), you will be categorised as an investor and will be liable to pay capital gains tax (at the time of liquidation).

Ongoing Tax Issue

A social media influencer who goes by Twitter handle “Indian Cryptogirl” told news.Bitcoin.com that “Over the past 2 years, a lot of people have been getting this” tax letter.

“A friend of mine got this way back in 2016. He went to the office, proved that he did not use any black money for the purchase of crypto by showing all his transactions and he was let go with a warning,” Indian Cryptogirl recalled. She believes that “If you’re not doing extremely high-value transactions that don’t match your earnings, you should be fine,” noting:

I feel it won’t end until India has a safe regulated crypto environment with defined guidelines, without which people have no idea what to follow to avoid such IT [income tax] notices.

Nischal Shetty, CEO of local crypto exchange Wazirx, shared with news.Bitcoin.com that if the letter is authentic then “it’s interesting to see that the Income Tax department has done some good ground work to understand crypto trading.” While still uncertain how authentic the letter is, he believes that “There’s nothing to worry here and I would suggest anyone receiving this to honestly answer the queries and pay their taxes.” The CEO asserted that “Every crypto trader should diligently file their taxes,” adding:

This also helps our cause of getting positive crypto regulations in India as the government will see the positive effects of crypto on income tax collected.

Tax Laws and Crypto Proposal

The Indian government has yet to decide whether to regulate or ban cryptocurrency. The interministerial committee (IMC) tasked with studying all aspects of cryptocurrency and providing recommendations has submitted a report with a draft bill to the government. The finance minister, however, recently admitted that she had not looked at the report and bill in detail.

Meanwhile, the Indian crypto community has ramped up efforts to engage lawmakers to show them how flawed the IMC report is in hopes that the government will not go ahead with the draft bill to ban cryptocurrencies. In the meantime, cryptocurrency is not prohibited in India. This was recently confirmed by Union Minister of State for Finance & Corporate Affairs Anurag Singh Thakur.

Reiterating that “Tax laws in India are applicable irrespective of the legal status of income,” Bhasin told news.Bitcoin.com that “Even if a ban is introduced, taxes would continue to apply to crypto income and it would not stop the taxman from chasing unaccounted or untaxed income earned from dealing in crypto assets,” elaborating:

Since the IMC recommendation, from the date of coming into effect, does propose a 90 day window to disclose and dispose crypto assets, any information provided in response to this notice would also get covered by the grace period.

What do you think of the Indian tax authority sending this probing letter to crypto owners? Let us know in the comments section below.

Disclaimer: Bitcoin.com does not provide tax, legal or accounting advice. This article is for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before making any decisions. Neither Bitcoin.com nor the author is responsible, directly or indirectly, for any damage or loss caused or alleged to be caused by or in connection with the use of or reliance on any content, goods or services mentioned in this article.



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