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IRS: Cryptocurrency is a Property & Swaps are Taxable

The Indian Government has begun Issuing Notices to High Net-worth Bitcoin Traders

Reading Time: 2 minutes by on December 20, 2017 Bitcoin, News, Regulation

Earlier in December 2017, the Indian Income Tax (IT) department reportedly surveyed all major cryptocurrency exchanges based in the country to investigate instances of money laundering. Now, on December 18, 2017, the IT department has announced that it will be issuing notices to half a million high net-worth individuals that participated in high volume digital currency trading on these exchanges.

The Income Tax department also stated that it would be assessing these individuals and entities for instances of tax evasion. The notices sent out will notify the individuals of any pending capital gains tax that applies to their bitcoin transactions or trade. The database containing details of all such entities will also be shared with other government bodies for a more detailed analysis.

The Indian government’s move to tax and possibly regulate digital currencies comes at the end of a spectacular year for bitcoin, after appreciating close to 20 times in 2017 alone. With the rise of several other cryptocurrencies, Initial Coin Offerings (ICOs) and related startups, the government has been showing an increased interest in standardizing the regulation and taxation of the entire ecosystem. Invoking section 133A of the Income Tax Act by surveying exchanges, it is clear that the IT department is looking to prevent

In general, a very small segment of the Indian population pays income tax, leading to a taxpayer percentage that, according to statistics, barely reaches two percent. One of the key reasons for that being the prevalence and public preference of cash transactions that often go unaccounted for.

Furthermore, as a result of cash hoarding, it is common for high-income individuals not to declare much income at all. India’s attempt to put an end to this practice was the infamous banknote demonetization of 2016. Regardless of the program’s effectiveness, it was a successful attempt that exposed and unearthed ‘black’ (undeclared) money, but a side effect of this was that some people began moving their wealth to bitcoin instead.

The Reserve Bank of India (RBI) has not recognized digital currencies as legal tender and will possibly continue to classify them as taxable commodities. In March 2017, the union finance ministry announced plans to bring cryptocurrencies under regulation but no new laws have emerged since.

Ever since bitcoin’s launch in 2009, the primary ideology behind cryptocurrencies has been to eventually replace traditional fiat with a peer to peer, decentralized alternative. If governments levy sufficiently limiting regulation on their circulation and usage, it will likely pose a significant detriment to their spread and adoption.

In another notably similar case, the United States Internal Revenue Service (IRS) ordered Coinbase, one of the most popular US based exchanges, to hand over the details of individuals with cryptocurrency trade activity exceeding $20,000 between 2013 and 2015. It is likely that this widely publicized incident led the Indian tax department to take equal measures. If other countries follow suit, bitcoin’s all-time high price above $19,000 may, after all, have been achieved too quickly.

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