Income Tax department asks cryptocurrency exchanges for information on trades

Income Tax department asks exchanges for information on trades&nbsp | &nbspPhoto Credit:&nbspThinkstock

Key Highlights

  • I-T department has asked cryptocurrency exchanges for ledger entries to look for price, time and number of digital coins sold

  • Exchanges are only source of such information as unlike equity markets there are no intermediaries for cryptocurrency trading

At a time when most cryptocurrencies have lost value due to continued weakness, the Income-Tax (I-T) Department’s recent action may add to the vows of investors in India. The I-T department has demanded trade details from all crypto exchanges in India in order to tax the profits made during the bull run.

According to an Economic Times report, the I-T department had sent notices to three exchanges enquiring about all ledger entries to look for price, time and number of digital coins sold by the exchanges.

This isn’t the first time that exchanges were asked for such information by the taxman. Similar notices were sent earlier in 2017 when Bitcoin touched an all-time high. A senior tax official told ET, it is a routine exercise, as the department has gone faceless, to check if everything is ok.

The I-T department has also asked for details such as the financials of the exchange but the purpose seems to be mainly to check the details of traders as the department already has information on exchanges, an official from one of the exchanges was quoted as saying in the report.

Unlike the stock market, where transactions occur through intermediaries, buy and sell orders for cryptocurrencies are placed directly on the exchange platform so exchanges are the sole source of such information.

Cryptocurrency traders may not withdraw the money and transfer the sale proceeds to their bank accounts so that they can buy when prices dip. This may result in some of the profits going untaxed, said another cryptocurrency official. The department may also want to check whether tax is being paid in full once the sale proceeds are moved to the trader’s bank account. 

Tax on the sale of crytocurrency is taxed at the full tax rate of 30% as such digital assets are not defined as ‘securities’ under the [under the Securities Contracts (Regulation) Act]. 

While many cryptocurrency traders have been hurt by the recent volatility in the prices of digital tokens, others made a killing last year after the Supreme Court’s verdict setting aside the Reserve Bank of India’s (RBI’s) 2018 directive triggered a bull run. The central bank, in its April 2018 directive, asked banks not to deal in digital currencies or facilitate the trade of such assets through their frameworks.