Income Tax Department of India secretly training to investigate Cryptocurrency

Till now the government of India hasn’t considered cryptocurrencies as legal tender but it has not been declared illegal as well. Crypto investors in India are still confused about showing their crypto investments in the annual income tax returns.

Previous notice to cryptocurrency investors

The Income-tax department has sent several notices to the crypto investors previously. In the last two years 2017 and 2018, the department has sent notices to many cryptocurrency traders. Also earlier this year the department sent notices to investors asking detailed income tax returns, credit and debit card transactions, and their investment in cryptocurrencies for the last three years.

21 out of the total 26 questions were directly related to cryptocurrency. Below are some of the questions that were stated:

There were several other questions related to using crypto wallets or payments via cryptocurrency etc.

Sneak Peak to the Guidebook

The Central Board of Direct Taxes of India developed the guidebook under the name “Introduction to Crypto-currencies and Forensic Examination of Bitcoin”. The Income-tax department of India officials is getting trained since 2017.

The book has several chapters explaining the origination of cryptocurrency, basics of Bitcoin, transaction fee details, etc. the book also states that it’s a digital representation of a value but it doesn’t have a legal tender status in any jurisdiction. it is neither issued nor guaranteed by any jurisdiction and it fulfills various functions only by agreement within the user community.

The book also describes that the terms “cryptocurrency”, “digital currency” and “virtual currency” have different meanings.

Investigating Process by Income Tax department

The book has all the detailed information on the growth in the past few years in the Indian Bitcoin market. There is mention of some well-designed websites that offer crypto investment options. It also talks about how the dark web operates in the crypto industry. The book mentions, there are 297 locations across India that are actively engaged in Bitcoin trades. And a total of 9,408 cities are involved in crypto to cash transactions. The book claims these all can be traced.

The book also explained how to track an active trader. Reportedly the department has created some fake accounts to investigate the same. The officials are using Blockexplorer.com and Blockchain.info tools. These tools provide insights into a transaction on a blockchain and can trace down to the IP address of the users.

The department also investigates social media platforms such as forums, blog messengers, etc. they track tech-savvy individuals with high net worth who spend a lot of time online to find such investors.

Seizing of Cryptocurrency

In a section of that book, it is mentioned that if any irregular activity is found in any online or offline wallet linked to an investor, the officials can issue a prohibitory order. And if the source is proved to be unexplained or shows unaccounted income, the amount can be converted from crypto to INR and seized. However, the Income Tax Department should have its own official wallets to transfer the seized crypto holdings.

The department has been planning this kind of investigation for a long time. Though the department decided to keep the book private, when they were asked about the book via Right to Information Act, they accepted the existence of the book but denied to share a copy.