Mumbai:

Indians who trade or invest in cryptocurrencies on Indian platforms could come under the taxman’s lens, as might those who hold such coin outside the country. The government is looking to amend current income tax and disclosure norms in the upcoming budget to include terms such as cryptocurrency.

The government wants to capture cryptocurrency income and investments within and outside India, said people aware of the development.

The government is considering amending Section 26A of the Income Tax Act and the Annual Information Regulation (AIR), which shows data on all investments made by a taxpayer and is often called a ‘tax passbook’.

“There is a recommendation to add the words cryptocurrency, crypto assets or digital currency in some parts of the Income Tax Act,” one of the persons said. “This would mean that those filing tax returns will have to specifically disclose their income from cryptocurrency investment or trading.”

Cryptocurrency Framework

AIR deals with disclosures of any investment of Rs 2 lakh and more in fixed deposits, mutual funds, recurring deposits and jewellery.

The fear is that the tax department cannot legally ask banks to reveal cryptocurrency transactions by customers, as the asset is not defined under the Income Tax Act.

"As it stands today, the tax department will find it difficult to legally seek information about cryptocurrency from taxpayers and banks as the tax law doesn’t recognise it," said Girish Vanvari, founder of tax advisory firm Transaction Square. "It’s the need of the hour that tax laws stay updated and include the word cryptocurrency or digital assets and not just amend Section 26A but also foreign asset disclosure norms."

Once such an amendment is made, the tax department can seek details of transactions by individuals through banking channels. In most cases, Indians have been using these to deposit money made through cryptocurrency investment and trading.

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