Indian Tax Department Sends Notices to Cryptocurrency Investors

India’s tax dept. orders investors to pay up after national survey reveals $3.5 billion worth of transactions during a 17-month period.

Indian cryptocurrency investors have been issued notices by the income tax department, after a national survey revealed that cryptocurrency transactions during a 17-month period amounted to more than $3.5 billion.

Last month, it was reported that the Indian income tax department conducted a surveillance operation to collect user data from Bitcoin exchanges throughout the country, on suspicion of tax evasion. The survey revealed “hundreds of thousands” of high-net-worth individuals (persons whose assets amounted to more than $1 million). At the time, however, the tax department refused to reveal further details, stating the operation was still on-going.

According to a recent report by Reuters, Indian tax officials revealed that they surveyed nine exchanges in the cities of Mumbai, Delhi, Pune, and Bengaluru, to assess the cryptocurrency trade in the country, after which the department sent out tax notices.

“We cannot turn a blind eye. It would have been disastrous to wait until the final verdict was out on its legality,” said B.R. Balakrishnan, a director general of investigations at the income tax department in Karnataka.

“We found that investors were not reflecting it [cryptocurrency gains] on their tax returns and in many cases, the investment was not accounted for,” he added.

Reuters reports that the notice orders crypto investors to pay tax on capital gains, in addition to asking them to provide information about their total holdings and the source of their funds.

As the popularity of digital currencies rises among both retail and institutional investors, governments worldwide have begun to look for ways to bring the crypto market under regulatory control. Huge gains, coupled with the potential for usage in criminal activities such as fraud and money laundering, have left regulators uneasy. In addition, the recent spate of regulatory activity in countries such as China and South Korea has caused the crypto market to crash.

The Indian government has adopted a cautious stance on Bitcoin and its peers from the start – Finance Minister Arun Jaitley has repeatedly clarified that cryptocurrencies are not recognized as legal tender in the country, the central bank has warned investors to dabble in cryptocurrencies at their own risk, and the government has even gone so far as to compare digital currencies to pyramid schemes.

However, investors appear undeterred by the warnings – estimates suggest that approximately 200,000 new investors enter the crypto market in India on a monthly basis. Last month, following the surveillance operation, seven major Bitcoin exchanges in India filed applications with the Advance Authority of Ruling (AAR), requesting clarity in regards to the taxation rules for crypto exchanges. However, it may be difficult to provide answers to such queries at this stage, since India has yet to introduce rules and regulations for digital currencies.