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India's Tax Authority Wants a Chunk of Your Bitcoin Profits

The RBI's warning on Wednesday coupled with Bitcoin value

In a first-ever move to understand and unearth the extent of transactions/ investments in Bitcoin - the crypto currency - in India, the Directorate of Income Tax (Investigation), Karnataka & Goa on Wednesday piloted fact-finding searches at the nine exchanges of Bitcoin in the country, including two in Bengaluru.

The Income Tax Department has come down heavily on major Bitcoin exchanges in India.

According to the survey teams, these officials are armed with financial data of these exchanges.

The official stated that the objective was "gathering evidence to establish the identity of investors and traders, transactions undertaken by them, identity of the counterparties, related bank accounts used, etc".

A senior official from the tax department was cited saying: "Out of these, about 8-10 lakh [800,000-1,000,000] entities would be active for transactions".

Previously, India's Central Bank - The Reserve Bank of India (RBI) - has warned several times against the associated risks involved while investing in cryptocurrencies and said that looking to a sudden rise in the valuations of Bitcoin, the authorities fear a swelling bubble that could burst any point of time. The tax department is seeking cases where a large amount of "black money" is said to have been siphoned off through the cryptocurrency route.

The regulators said they were also investigating cases from past year when large amounts of "black money" had been laundered using bitcoin during the demonetization process in the country.

He further said that the creation of virtual currencies like Bitcoins as a medium of payments is not authorised by any central bank or monetary authority. During this time, the major exchanges have reported record high new-users registrations.

The news comes after reports of the government having set up a cryptocurrency panel, which recommended shutting down dealers of these unregulated and decentralized currencies across the country.

"The absence of counter parties in usage of virtual currencies including Bitcoins, for illicit and illegal activities in anonymous/pseudonymous systems could subject the users to unintentional breaches of anti-money laundering and combating the financing of terrorism laws", Minister of State for Finance, Arjun Ram Meghwal, said in a written reply in the Rajya Sabha.

"The government's position is clear, we don't recognize this as legal currency as of now", he said at the time.