Finance minister Nirmala Sitharaman on Tuesday said no separate section or provision in the Income-tax Act, 1961, currently deals specifically with the rate, applicability and collection of tax on the income earned by cryptocurrency exchanges and other platforms that provide such services.
Nevertheless, extant statutory provisions clearly envisage that total income for the purpose of taxation will include entire income from all sources, according to her reply in the Rajya Sabha. “The income earned by crypto exchanges and other crypto service providing platforms is liable to tax under the head Business or Profession under Chapter-IV of the Income-tax Act, 1961. Applicability of tax rate will depend on status and category of taxpayer,” Sitharaman said.
The statement comes amid media reports that the government is planning to amend the income tax laws to bring cryptocurrencies under the tax net, with some changes expected as early as the next Budget. Already, some investors are paying capital gains tax on their income from cryptocurrency.
The government also intends to introduce the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021, in the ongoing winter session of Parliament. The Bill seeks to “prohibit all private cryptocurrencies”, although it will allow certain exceptions to promote the underlying technology of cryptocurrency and its uses”. It will also create a facilitative framework for the launch of the official digital currency by the RBI. Currently, cryptos remain unregulated in India.
Replying to another query on frauds relating to cryptocurrency, Sitharaman said the Centre does not collect specific information on such frauds. “Further, ‘Police’ and ‘Public Order’ are state subjects as per the Seventh Schedule of the Constitution of India. States/UTs are primarily responsible for the prevention, detection, investigation and prosecution of such crimes, including financial frauds through their law enforcement agencies,” she said.
However, eight cases of cryptocurrency-related fraud are under investigation by the enforcement directorate, she added.
To a query if the Reserve Bank of India (RBI) has raised alarm on cryptocurrencies, minister of state for finance Pankaj Chaudhary told the Rajya Sabha that the central bank has been “cautioning users, holders and traders of virtual currencies (VCs) vide public notices on December 24, 2013, February 01, 2017 and December 05, 2017 that dealing in VCs is associated with potential economic, financial, operational, legal, customer protection and security related risks”.
In a circular dated May 31, 2021, the RBI has also advised entities regulated by it (including banks) to continue to carry out customer due diligence processes for transactions in VCs, in step with the regulations governing standards for Know Your Customer, anti-money laundering, combating of financing of terrorism and obligations under the Prevention of Money Laundering Act, 2002, Chaudhary said.