Nirmala Sitharaman, the finance minister, said on Tuesday that there is currently no separate section or provision in the Income-tax Act, 1961, that deals specifically with the rate, applicability, and collection of tax on the income earned by cryptocurrency exchanges and other platforms that provide such services.
Nevertheless, extant statutory provisions clearly envisage that total income for the purpose of taxation will include entire income from all sources, according to her reply in the Rajya Sabha. “The income earned by crypto exchanges and other crypto service providing platforms is liable to tax under the head Business or Profession under Chapter-IV of the Income-tax Act, 1961. Applicability of tax rate will depend on status and category of taxpayer,” Sitharaman said.
The announcement comes amid allegations in the media that the government is considering amending income tax regulations to include cryptocurrencies in the tax net, with some changes expected as soon as the next Budget. Some bitcoin investors are already paying capital gains tax on their profits.
In the current winter session of Parliament, the government plans to introduce the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021. The bill aims to “prohibit all private cryptocurrencies,” with some exceptions to promote cryptocurrency’s underlying technology and applications. It will also set up a framework that will make the RBI’s formal digital currency rollout easier. Cryptocurrencies are currently unregulated in India.
Replying to another query on frauds relating to cryptocurrency, Sitharaman said the Centre does not collect specific information on such frauds. “Further, ‘Police’ and ‘Public Order’ are state subjects as per the Seventh Schedule of the Constitution of India. States/UTs are primarily responsible for the prevention, detection, investigation and prosecution of such crimes, including financial frauds through their law enforcement agencies,” she said.
However, eight cases of cryptocurrency-related fraud are under investigation by the enforcement directorate, she added
To a query if the Reserve Bank of India (RBI) has raised alarm on cryptocurrencies, minister of state for finance Pankaj Chaudhary told the Rajya Sabha that the central bank has been “cautioning users, holders and traders of virtual currencies (VCs) vide public notices on December 24, 2013, February 01, 2017 and December 05, 2017 that dealing in VCs is associated with potential economic, financial, operational, legal, customer protection and security related risks”.
In a circular dated May 31, 2021, the RBI has also advised entities regulated by it (including banks) to continue to carry out customer due diligence processes for transactions in VCs, in step with the regulations governing standards for Know Your Customer, anti-money laundering, combating of financing of terrorism and obligations under the Prevention of Money Laundering Act, 2002, Chaudhary said.
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