India’s tax department secretly trains its Cryptocurre...
Bitcoin, Cryptocurrencies

India’s tax department secretly trains its Cryptocurrencies Compliance Officers

The Indian Department of Revenue Tax unofficially trains the personnel in cryptocurrency inquiry. A department’s internal guidebook discusses the features of the cryptocurrency. The “dark side of Bitcoin” and the best practice in tax enforcement.

Cryptocurrencies have not been recognized by the Indian government, but they have not been deemed illegal. Crypto holders have questions as to how to disclose on their annual income tax statements their savings. Because of all these conditions, it is a gray area for the Indian crypto world to obtain cryptocurrencies.

In this year, several bitcoin holders had received detailed information from the Income Tax Department. Reports of the department’s income tax, loan, debit card, and interest of bitcoin or other cryptocurrencies have sought over the last three years. The department asked a total of 26 questions. 21 of which referred to cryptocurrency mining, cryptocurrency exchange, pay-pay services by cryptocurrencies, cryptocurrency wallet use and other topics related to cryptocurrency. Some questions were:

  • Please indicate that you purchase/sell Bitcoins or other cryptocurrencies in cash or through peer-to-peer transfers.
  • Would you engage in mining in your own physical set-up or through cloud mining?
  • Have you received any Bitcoin/cryptocurrencies for any sale? In previous income tax returns, did you report any such revenue?

The tax department had issued notices to thousands of crypto-investors and traders in 2017 and 2018. The department has analyzed large cryptographical transactions before to gather information for each crypto trader.

Tax officials ‘ advanced preparation

Why, then, are these detailed, detailed questions planned by the department? The answer lies in a guidebook entitled “Entry into Cryptocurrencies and Bitcoin Forensic Analysis”. This produced by the Central Tax Council of India. Since 2017, its authorities have qualified to prosecute crypto-currency investment by a national income tax department.

The roots of bitcoins, public key encryption, Bitcoin’s foundation, mining, 51 % of threats, block incentives and transaction charges are the first four chapters of this book. This state the virtual currency serves a digital asset but has no legal status in any jurisdiction. This goes on to say that no authority concerns or promises it and fulfills different functions only by consensus in the user community. The research discusses different definitions and argues that the words ‘ virtual currency ‘ and ‘ digital currency ‘ have distinct meanings.

The book states that in recent years the Indian demand in Bitcoin has grown. Some well-designed websites are offering many opportunities for investment. Some work on the dark web, through social media accounts. According to the book, 297 sites had spread across the country where Bitcoin-related companies are actively engaged. The guidebook says that all these individuals can be monitored. A total of 9,408 cities are popular sites for the exchange between cryptocurrencies.

Would you make transfers between crypto-cash and tax authorities??

A source said that the tax department has produced some fake accounts for investigating crypto traders in India. The book is positive and provides some real examples of how someone on the LocalBitcoins site should probe traders. Since this site needs no proof of identity, much illegal trade is taking place.

The book states: ‘Let’s see Bittu Sharma’s situation. He is in the Bitcoin marketplace in Delhi and ready to purchase Bitcoin in cash. He put his bank details and contact number in there. An authority disclosed his real name as Prashanna via investigations.

Tax officials use tools such as and to provide information and search capabilities in public ledger or blockchain to trace transactions. This could connect to an IP address of a device and provide useful user location information. A few screenshots of Bitcoin Address on these blockchain web sites has included in the guidebook.

This document has analyzes the impact of demonization in India in November 2016. In which the government excluded banknotes of 500 and 1.000 rupees from their legal tendering status. In those days, people may have converted their black money into bitcoin and dissimulated it in the semi-anonymous blockchain environment.

Finding signs

The identification of exchanges and transfers, names of counterpart parties, related bank accounts used, etc. It is dependent on essential sources of evidence from third parties or conversations. That includes Bitcoin dealers and processors. Tax officials monitor websites to identify sellers in Bitcoin and other cryptocurrencies.

Certain social media platforms such as blogs, forums, Bitcoin chat, Bitcoin network, messenger applications and the like will monitored by the Income Tax authorities. The book suggests that a possible cryptocurrency user has certain proven characteristics: Tech-savvy people, who use iPhones, iPods, computers, etc.

  • Cryptocurrencies most often exist in the age group of 18 and 40 years.
  • experienced, online or interactive gamers who have spent enough time.
  • People with considerable net worth.

Cryptocurrencies capturing

The most interesting part arrives here. The book states that officials should issue a prohibition order u / s132 (3), upon detecting suspicious behavior with an offline or electronic pouch connected to an investor. If the inquiry reveals the source to be ambiguous or to reflect uncounted revenue, the intermediary will convert crypto to seizable Indian rupees.

If this is a pocket on-line or phone:

  • When a private key has been identified, it can be a demand that a single transform crypt to ruptured ruptures.

If a private key has not identified and the person is not helpful, the person should put under a prohibition order from the appointed officer. Assume you possess 10 BTC and are not compliant — the 10 BTC can be translated to rupees, and other similar properties can be stolen.

It has indicated that to transfer stolen crypto assets the income tax department should have its official wallet.

The department has long been prepared

The Reserve Bank of India issued a notice on 6 April 2018 demanding that banks do not make any services to digital currency individuals and companies. Yet even before, the tax department intended to boost its personnel. On December 13, 2017, an open tender has made available to the Printing and Publishing Division of the Income Tax Directorate. With a subject line ‘Inviting sealed quotes to publish a book called ‘Introduction to cryptocurrency and Bitcoin transaction forensic examination’.

Since the aim of this book was to educate Indian tax officers on cryptocurrencies and related inquiries. The tax department agreed to not make this book public. The department acknowledged the fact that this book has published but failed to provide a copy. They asked about the nature of such a book by the Right to Information Act 2015.

Anoush Bhasin, CEO of Quagmire Consulting, a firm of tax consulting, said Bitcoin is bound to attract interest from tax authorities worldwide in light of its significant value during the last decade. “The rules of direct taxation in effect are applicable to crypto activity transactions as far as India was concerned,” he said. “The essence of income and correct accounting depends on the nature of the transaction. Which is how we allow and support Indians who work with crypto activity to comply with income tax laws.”

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