The Government of India plans to bring cryptocurrency investments by Indian citizens on domestic and global platforms under the tax ambit instead of imposing an outright ban on them.
The Government is looking to amend existing income tax laws to bring digital coins under its ambit as well in the upcoming budget. It wants to tax cryptocurrency income and investments within and outside India instead of a complete ban like China, said reports.
The Centre is considering Section 26A of the Income Tax Act and the Annual Information Regulation (AIR) which carries the data of all the investments made by a taxpayer and is often referred to as a ‘tax passbook’.
The Finance Ministry is likely to recommend adding the words ‘cryptocurrency’, ‘crypto assets’ or ‘digital currency’ in certain parts of the I-T Act, a report from Economic Times said.
This would require income tax assesses to report their cryptocurrency investments and profits while filing tax returns, it added.
AIR is used to disclose any investments of 2 lakh INR or more in fixed deposits, mutual funds, recurring deposits and jewellery.
Currently, the tax department cannot legally approach banks to disclose information regarding cryptocurrency transactions by its customers because the asset is not defined or named in the Income Tax Act.
Girish Vanvari, founder of tax advisory firm Transaction Square told the publication that tax laws need to be updated and they include the words cryptocurrency or digital assets and not just amend Section 26A but also foreign asset disclosure norms.
Post the amendment, the banks may be easily approached by the tax department to cough up enough information of individual trading activity with respect to digital coins.
Earlier fears of an outright ban on cryptocurrencies triggered a sell-off on Indian platforms after the government notified a bill to regulate such assets in the Winter Session of the Parliament.
However, reports now claim that the Centre wants to create a distinction between currency and digital coins by categorising the latter as “digital assets” and bringing trade activities under capital markets regulator Securities and Exchange Board of India (SEBI).
This will be done to ensure that RBI’s proposed cryptocurrency can be distinguished from private digital tokens. The government is slated to introduce the Cryptocurrency and Regulation of Official Digital Currency Bill 2021 in the third week of the ongoing Winter Session.