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Is I-T crackdown on exchanges first step towards pulling strings on bullish bitcoin?

The I-T department has claimed the surveys were conducted under Section 133A of the India Tax Act at nine bitcoin exchanges in Delhi, Bengaluru, Hyderabad, Kochi and Gurugram by various teams headed by the I-T Department's Bengaluru wing.

twitter-logo BusinessToday.in   New Delhi     Last Updated: December 20, 2017  | 15:32 IST
Is I-T crackdown on exchanges first step towards pulling strings on bullish bitcoin?

At a time when the Reserve Bank of India (RBI) has been consistently vocal against investing in virtual currency bitcoin, the government - sensing a surge in capital gains after a meteoric rise in the cryptocurrency value, and its potential to be used for fraud, money laundering and illicit trade - wants to clamp down on tax offenders earning money by investing unaccounted wealth in bitcoin. Like many countries, India also does not regulate bitcoin so legal loopholes around the cryptocurrency could create hurdles for the Income Tax Department. If the I-T Department's raids - or survey-operations as they called it - at nine major bitcoin exchanges across the country on Wednesday indicate anything, the central government is surely planning on devising a mechanism to put such businesses under the tax radar.
 
The I-T department has claimed the surveys were conducted under Section 133A of the India Tax Act at nine bitcoin exchanges in Delhi, Bengaluru, Hyderabad, Kochi and Gurugram by various teams headed by the I-T Department's Bengaluru wing. The survey, they said, was aimed at "gathering evidence for establishing the identity of investors and traders, transaction undertaken by them, identity of counterparties, related bank accounts used, among others". However, tax experts say bitcoins are not specifically mentioned in the Income Tax Act, but gains on the cryptocurrency increases in value, so it can be covered under the wide definition of the I-T Act.
 
The Union Ministry of Finance in March had expressed its intention to take steps to deal with virtual currencies, and the latest step on collecting financial data and the working methodology of these exchanges could prove to be a step in the right direction to stop bitcoin exchanges from becoming a tax haven of unaccounted wealth. The cryptocurrency, which has seen around 15,00 per cent rise its value in the past one year, has become a concern for central banks across the world; many countries like the US and Canada consider bitcoin as a commodity and money services businesses, thus making it taxable.
 
Vijay Mukhi, one of the pioneers of the Indian IT industry, had earlier said that bitcoin exchanges (especially in tax haven countries) were becoming a "new platform for concealing the black money of high networth individuals (HNIs), businessmen and all criminals who loves to evade taxes".  Mukhi advised against banning the cryptocurrency on the ground that it may go underground and still remain operational. "In fact, the central government should implement demonetisation 2.0 to stop the flow of black money moving towards bitcoins," Mukhi said.
 
Also, being the most popular and an unregulated currency, bitcoin is vulnerable to hackers waiting for the right time to dig in their claws on people's money. Recently, hackers stole over $60 million in bitcoins by breaking into Slovenian-based virtual currency marketplace NiceHash.

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