Buying, selling Bitcoin? You are being watched by all of these: Income Tax, SEBI, RBI, FinMin

By: | Published: December 19, 2017 11:27 AM

Those trading in this cryptocurrency must remain vigilant as a number of government agencies have started keeping a strict vigil on such investors of late.

japan, japan bitcoin, employee salaries, bitcoin salaries, virtual currency, salary in bitcoin, GMO internet, japan salaries, cryptocurrencyThe virtual currency still remains unregulated in the country. (Image: Reuters)

A huge spike registered in the value of Bitcoin and other virtual currencies in the recent past has taken the entire world including India by storm. Despite being actively traded across different cryptocurrency exchanges across India, the virtual currency still remains unregulated in the country. However, those trading in this cryptocurrency must remain vigilant from now onwards as a number of government agencies have started keeping a strict vigil on such investors of late. In the latest, the Income Tax (I-T) department is set to issue notices to 4 lakh to 5 lakh high net-worth individuals (HNI) across the country who were trading on the exchanges. This action comes days after the taxman conducted surveys at nine such exchanges across the country to check instances of tax evasion. The various teams of the sleuths of the department, under the command of the Bengaluru investigation wing, had visited the premises of nine such exchanges in the country including in Delhi, Bengaluru, Hyderabad, Kochi, and Gurugram. The survey, under section 133A of the Income Tax Act, is being conducted for gathering evidence for establishing the identity of investors and traders, transaction undertaken by them, identity of counterparties, related bank accounts used, among others. PTI reports an income tax official saying that they found out of the estimated 2 million entities registered on these exchanges, about 4 to 5 lakh were “operational” and indulging in transactions and investments. Sources also told PTI that the Bengaluru investigation wing of the tax department, which supervised last week’s operations, has now dispatched the information of the individuals and entities found on these databases to eight other such wings across the country for a detailed probe.

“Those individuals and entities whose records were recovered by the department are now being probed under tax evasion charges. Notices are being issued and they will have to pay capital gains tax on the bitcoin investments and trade,” a senior official privy to the operation said. About 0.4-0.5 million HNIs and their businesses are being issued notices which will first seek their relevant financial details and subsequently establish the tax demand, if any, he said.

SEBI is also active

In absence of any regulatory regime in India, illicit financial schemes seeking public investments in return of attractive returns are mushrooming in various parts of the country. Market watchdog Sebi has planned to come down heavily on illicit ‘initial coin offers.’ However, Sebi is not keen to take on the mantle of a regulator for such ‘trading’ — currently being offered on a number of so-called exchanges despite there being no rules in this regard — as the underlying product, which is Bitcoin or any such cryptocurrency, is not an approved product by RBI or any other agency. At the same time, Sebi cannot allow gullible investors to be taken for a ride with unlawful promises by these exchanges and those claiming to ‘mint’ cryptocurrencies, PTI reported quoting an unidentified source. A number of them are suspected to be indulging in fraudulent activities without actually minting any such virtual currencies that require very complex algorithms. A number of ‘coin offerings’ being made in India are nothing but fraudulent Ponzi or pyramid schemes, including some offering secondary trading in Bitcoins or other established virtual currencies, while many others are plain frauds without any such currency actually being in play, they added.

Finance Ministry forms new panel

Finance Ministry on on December 15 formed a new panel to frame response with respect to the Bitcoin issue. The new panel will be headed by DEA Secretary Subhash Chandra Garg. RBI Deputy Governor SP Kanungo, Sebi Chairman Ajay Tyagi, and IT Secretary are the other members of the newly formed panel. The government in April this year had constituted a committee comprising nine members including representatives of RBI, SBI, NITI Aayog and Department of Financial Services to examine the existing framework on digital or cryptocurrencies both in India and globally and recommend measures for dealing with threats arising out of such virtual currencies such as money laundering  and others. The Centre had allotted a three-month time period to the panel for submitting this report. The panel had then said that Bitcoin (most popular cryptocurrency) is neither a currency nor a coin. It had further said that those dealing with cryptocurrencies in India should shut shop. The panel had suggested a law to declare Bitcoin illegal if the measures to curb it appeared ineffective.

RBI’ stance

Even the Reserve Bank of India doesn’t appear much enthused by the idea of trading in cryptocurrency. Cautioning users, holders and traders of VCs third time since February 2013, India’s central banking institution on December 4 came out with another warning letter making them aware about the potential economic, financial, operational, legal, customer protection and security related risks associated in dealing with such VCs. “In the wake of significant spurt in the valuation of many VCs and rapid growth in Initial Coin Offerings (ICOs), RBI reiterates the concerns conveyed in the earlier releases,” said the central bank. RBI clarified that it has not given any licence or authorisation to any entity or company to operate such schemes or deal with Bitcoin or any VC.

Global scenario

South Korea on December 13 banned its financial institutions from dealing in virtual currencies such as Bitcoin. The hyper-wired country has emerged as a hotbed for cryptocurrency trading, accounting for some 20 percent of global Bitcoin transactions — about 10 times its share of the world economy. About one million South Koreans, many of them small-time investors, are estimated to own Bitcoins, and demand is so high that prices for the unit are around 20 percent higher than in the US, its biggest market. Even futures trading in the digital currency started on the Chicago Board Options Exchange, the first time it has appeared on a traditional platform.

With PTI inputs

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