Income Tax Department asks exchanges for information on trades | Photo credit: Thinkstock
- IT has asked cryptocurrency exchanges for ledger entries to search for price, time, and number of digital coins sold
- Exchanges are only one source of such information as, unlike the stock markets, there are no intermediaries for trading cryptocurrencies
At a time when most cryptocurrencies have been depreciating due to persistent weakness, recent moves by the Income Tax (IT) Department could reinforce the promise made by investors in India. IT has requested trading details from all crypto exchanges in India in order to tax the profits made during the bull run.
According to a report in the Economic Times, IT had sent notices to three exchanges inquiring about all ledger entries in order to find the price, time and number of digital coins sold by the exchanges.
It is not the first time that stock exchanges have been asked for such information by the tax authorities. Similar notices were sent out in early 2017 when Bitcoin hit an all-time high. A senior tax officer told ET that since the department has become faceless, checking that everything is fine is a routine exercise.
The IT department has also asked for details like the exchange’s financials, but the purpose seems mainly to be to verify the details of the traders as the department already has information on exchanges, an official of one of the exchanges became in the report.
In contrast to the stock market, where transactions are carried out through intermediaries, buy and sell orders for cryptocurrencies are placed directly on the exchange platform, so the exchanges are the only source of such information.
Cryptocurrency traders are not allowed to withdraw the money and transfer the sales proceeds to their bank accounts so they can buy when prices go down. This can result in some of the profits going untaxed, another cryptocurrency official said. The department may also want to verify that taxes have been paid in full once the sales proceeds have been deposited into the merchant’s bank account.
The tax on the sale of cryptocurrency is taxed at the full 30% tax rate as such digital assets are not classified as “securities” within the meaning of the [under the Securities Contracts (Regulation) Act].
While many cryptocurrency traders have been hit by the recent volatility in digital token prices, others committed murder last year after the Supreme Court ruling to set aside the Reserve Bank of India (RBI) policy of 2018 sparked a bull run . In its April 2018 guideline, the central bank called on banks not to trade in digital currencies or to facilitate trading in such assets through their framework conditions.