On December 18, 2017, reports from India indicated that the country's Income Tax Department has poised itself to issue notices to certain cryptocurrency investors.
High net worth individuals (HNI) might be expecting a visit from the Bengaluru taxman, according to sources who said that after surveying 2 million registered entities, the department identified four to five hundred thousand that actively transact and invest in cryptocurrencies.
According to a senior official familiar with the tax authority's plan, "Those individuals and entities whose records were recovered by the department are now being probed under tax evasion charges. Notices are being issued and they will have to pay capital gains tax on the bitcoin investments and trade."
He went on to say that HNIs and their businesses are subsequently being audited and must submit financial data to be referenced for tax assessment purposes. The official maintained that cryptocurrencies lack regulation and are currently illegal in the country. As such, the Income Tax Department is basing its operation on existing provisions, namely section 133 A of the Income Tax Act, which allows "gathering evidence for establishing the identity of investors and traders, the transaction undertaken by them, identity of counter-parties, related bank accounts used, among others."
Another facet of the law allows tax officials to conduct surprise inspections of businesses that are under investigation, but not residential addresses.