Indian IT secretly training officers on cryptocurrencies according to a report by Cointelegraph. The news has not been corroborated by other media houses. However, the report sites a manual that details the process of investigating any cryptocurrency assets.
The Income Tax Department of India is secretly training its officials to investigate cryptocurrencies. An internal guidebook circulated by the department explains cryptocurrencies, their characteristics, the “dark side of Bitcoin” and the best investigation practices for tax officials.
The Indian government doesn’t consider cryptocurrencies as legal tender, but it also hasn’t declared them outright illegal. Crypto investors are therefore still doubtful on how to show their investments in their annual income tax returns. Due to all these circumstances, earning through cryptocurrencies is a gray area for the Indian crypto community.
Earlier this year, the Income Tax Department sent detailed notices to some cryptocurrency investors. The department asked for details on the last three years of their income tax returns, credit and debit card transactions, as well as their investment in Bitcoin or other cryptocurrencies. The department asked a total of 26 questions, and 21 of these were related to crypto investment, transacting on cryptocurrency exchanges, using paid services via cryptocurrencies, using crypto wallets, and other topics related to crypto. These were some of the questions:
Please state whether you are buying/selling Bitcoins or other cryptocurrencies from LocalBitcoins.com via cash or via peer-to-peer transactions.
Are you involved in mining by investing in your own physical setup or via cloud mining?
Have you received any Bitcoin/cryptocurrencies for any sale made/service rendered? Have you declared any such income in previous income tax returns?
Previously, in 2017 and 2018, the tax department sent notices to thousands of crypto investors and traders. The department also previously surveyed major crypto exchanges to collect the details of individual crypto traders.
Internal training of tax officials
So, how does the department design these detailed, in-depth questions? The answer lies in a guidebook titled “Introduction to Crypto-currencies and Forensic Examination of Bitcoin,” created by India’s Central Board of Direct Taxes. The nation’s income tax department has been training its officials since 2017 to investigate cryptocurrency investment.
Here comes the most interesting part. The book states that if officials discover irregular activity with any offline or online wallet linked to an investor, they should issue a prohibitory order u/s 132 (3). If the investigation proves that the source is unexplained or represents unaccounted income, an intermediary can be directed to convert crypto into Indian rupees, which can be seized.
If this is an on-chain or online wallet:
If a private key is found, the person can be asked to convert crypto into rupees, which can be seized.
If a private key is not found and the person is not cooperative, an authorized officer should place a prohibitory order on the person. Alternatively, suppose you own 10 BTC and aren’t cooperative — the department can convert that 10 BTC into rupees and can seize other assets equivalent to that value.
It also suggested that the Income Tax Department should have its own official wallets to transfer the person’s seized crypto holdings.
Indian IT secretly training officers enables them to make these judgements.