India’s Income Tax Department Is Secretly Training Its Officials to Investigate Cryptocurrencies

The Income Tax Department of India is secretly training its officials to investigate cryptocurrencies. An internal guidebook circulated by the department explains cryptocurrencies, their characteristics, the “dark side of Bitcoin” and the best investigation practices for tax officials.

The Indian government doesn’t consider cryptocurrencies as legal tender, but it also hasn’t declared them outright illegal. Crypto investors are therefore still doubtful on how to show their investments in their annual income tax returns. Due to all these circumstances, earning through cryptocurrencies is a gray area for the Indian crypto community.

Earlier this year, the Income Tax Department sent detailed notices to some cryptocurrency investors. The department asked for details on the last three years of their income tax returns, credit and debit card transactions, as well as their investment in Bitcoin or other cryptocurrencies. The department asked a total of 26 questions, and 21 of these were related to crypto investment, transacting on cryptocurrency exchanges, using paid services via cryptocurrencies, using crypto wallets, and other topics related to crypto. These were some of the questions:

  • Please state whether you are buying/selling Bitcoins or other cryptocurrencies from LocalBitcoins.com via cash or via peer-to-peer transactions.
  • Are you involved in mining by investing in your own physical setup or via cloud mining?
  • Have you received any Bitcoin/cryptocurrencies for any sale made/service rendered? Have you declared any such income in previous income tax returns?

Previously, in 2017 and 2018, the tax department sent notices to thousands of crypto investors and traders. The department also previously surveyed major crypto exchanges to collect the details of individual crypto traders.

Internal training of tax officials

So, how does the department design these detailed, in-depth questions? The answer lies in a guidebook titled “Introduction to Crypto-currencies and…

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