Bitcoin: Income tax dept sends notices to HNIs, wants to know source of investment

The income tax department has specifically sought details of bitcoin investments during the demonetisation period, that is between 1 November 2016 and 31 December 2016

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Mumbai: The income tax department on Saturday asked bitcoin holders to disclose details of bitcoins or other cryptocurrency transactions. The income tax notices were issued to 4-5 lakh high net worth individuals (HNIs) under the annexure to summons under Section 131 of the Income Tax Act.

Mint has a copy of the tax notice to bitcoin holders.

“We have sent out summons to HNIs who were trading in bitcoins under Section 131. Right now, it is mostly fact-finding to understand sources of income and whether there is any unreported income arising out of bitcoins,” said an income tax official declining to be named.

The move follows a survey by the income tax department on bitcoin exchanges to determine how tax assessees were treating bitcoin investments. In addition, enforcement directorate (ED) also plans to scrutinize bitcoin exchanges to check for potential violations of foreign exchange rules by the exchanges and cryptocurrency investors, Mint reported on 21 December.

The income tax department has specifically asked for details of investment and sales of bitcoins and other cryptocurrencies in India and abroad between 1 November 2016 and 31 December 2016.

“This is the first time I-T department is asking so many details. This is based on the presumption that nothing has been disclosed (in case of bitcoins) and hence they want to know everything. It is also looking at the demonetisation period specifically hence the mention of specific dates,” said Gautam Nayak, a Mumbai-based chartered accountant.

Apart from details on period of dealing with cryptocurrencies, the I-T notice seeks information on source of income for the initial investment. The tax department also wants to know in which bitcoin or cryptocurrency exchanges, in India and abroad, does a holder have accounts.

“You as an bitcoin or cryptocurrency holder will have to provide details of all the wallets you are using along with your Unique ID number. The department also wants to know whether you are using physical hardware wallet for storing your bitcoins and other cryptocurrencies,” says the I-T notice. A bitcoin holder will also have to provide balance as on date along with public ID or wallet number on the blockchain account, the notice added.

The I-T department also sought details of all transaction in bitcoins and other cryptocurrencies from the date the bitcoin holder started dealing with, along with year-wise transaction details and statement of individual transactions.

“In case of gains, you have to state profits or capital gains made by you from transaction in cryptocurrencies year-wise with statements showing the workings. If you are holding bitcoins or other cryptocurrencies as on date, you have to furnish details of the same including the wallet’s public key in which they are kept,” according to the notification. The I-T notice also sought to know whether returns have been filed on gain from sale of cryptocurrencies as income. It asks if you have paid the advance tax for the gains made in the current year.

“You also have to state whether you are buying or selling bitcoins and other cryptocurrencies from websites such as polonies.com, coinable.com, bittrex.com or any other websites registered out of India,” the notice added.

The tax authorities also want to know what was the mode of payment for receiving money out of bitcoin or cryptocurrency sales from websites registered out of India. “You have to submit details of total purchase and sales of bitcoins and other cryptocurrencies from websites registered out of India. You also have to state whether you are buying or selling cryptocurrencies in cash by making peer to peer transfer. If you are then you have to submit the details of payments made and received along with details of the buyer and seller with his or her public IS on wallet number,” said the notification.

In case a bitcoin holder has made cash transaction for cryptocurrencies on exchanges, he has to submit details of transfer along with details of the platforms. In case the holder is involved in bitcoin mining, he has to give details on “whether you yourself is involved in mining by investing in own physical set up, whether you have invested in cloud mining an hash mining, details of the total investment in mining financial year wise, details of reward fees earned by mining of bitcoins or other cryptocurrenices in a financial year and details of mining companies you have invested into along with the details of reward fees earned financial year wise”.

If a holder has received any bitcoins or cryptocurrencies for any service or sales in India or outside India, the tax department wants to know the details of that transaction along with details of the person making the transaction with his public ID details.