Last week, income tax department surveyed the major bitcoin exchanges in India. The survey reports said, this was done to collect information about transactions and check whether there was a risk of tax evasion. This week, it was reported that the income tax department is set to issue notices to about 5,00,000 high net worth individuals trading on the exchange across India. This comes at a time when there are still no clear regulations on cryptocurrencies and bitcoin exchanges.
Although the Reserve Bank of India (RBI) advises caution on its use, bitcoin is not illegal in India. Cryptocurrency exchanges operate freely and hence we can say that bitcoin is legal. So, if it is a legal entity, why is there silence on its regulation? Also, who is responsible for regulating it?
The RBI has so far issued three notifications pertaining to bitcoin and other virtual currencies (VC). In all these, starting December 2013, the RBI has cautioned users, holders and traders on the risk of these currencies and clarified that it has not given any licence or authorisation to any entity or company to operate such schemes or deals . In a December 2013 notification, the RBI said, “The creation, trading or usage of VCs including Bitcoins, as a medium for payment are not authorised by any central bank or monetary authority. No regulatory approvals, registration or authorisation is stated to have been obtained by the entities concerned for carrying on such activities.” Other than cautioning the public, the RBI hasn’t taken any regulatory stance on virtual currencies yet.
After repeated cautionary circulars from the apex bank, in April 2017 the government set up an inter-disciplinary committee—chaired by special secretary (economic affairs)—to examine the existing framework of virtual currencies. The committee was supposed to submit its report within 3 months. The committee was set up to take stock of the present status of virtual currencies both in India and globally, examine the existing global regulatory and legal structures governing virtual currencies, suggest measures for dealing with such virtual currencies including issues relating to consumer protection, money laundering and examine any other matter related to virtual currencies that may be relevant. In December 2017, finance minister Arun Jaitley told the media that the government doesn’t consider bitcoin as a legal tender and it is working on recommendations for such currencies.
Meanwhile, Securities Exchange Board of India (Sebi) on 20 December said that if bitcoin is considered as a commodity derivative then Sebi might regulate it. In countries such as the US, the Sebi-equivalent regulatory body is looking into cryptocurrenices. Experts say, considering cryptocurrencies are looked at as a commodity, Sebi should look at regulating them.
Though there are still no clear regulations or proper jurisdiction, the income-tax department is clear that tax has to be paid on all cryptocurrency transactions. Though there is no mention of cryptocurrencies in the Act, income tax will still have to be paid on any gains accruing from cryptocurrency transactions.