India: Information Reporting for Cryptocurrency
Clarified guidance by Income Tax Department could improve tax compliance in India.
In recent years, virtual currencies have surged in popularity. Individuals and corporations utilise virtual money as investments and to pay for goods and services on a sporadic basis. Catax evaluated publicly accessible material and researched about officials from the Income Tax Department, the CBDT, and other government organisations, as well as tax and virtual currency stakeholders.
Catax has suggested that the Income Tax Department clarify that the information provided is not autoreactive and that the Income Tax Department work with other agencies to increase information reporting and address how "foreign currency laws" apply to virtual currency.
Catax argues that standardizing reporting to the Income Tax department on the acquisition, disposition, and usage of virtual currency without waiting for future development is a pressing requirement at the moment. Taxpayers are expected to record and pay taxes on income earned through the use of virtual currencies, but the IT department has minimal data on cryptocurrency use.
Tax forms, even those submitted by third parties such as financial institutions, normally do not need filers to disclose whether the income or transaction they record involves virtual currency - the source of purchase, the mode of acquisition, the proceeds of cash, and so forth.
The Income Tax Department has taken a number of actions to address virtual compliance risks, including notifying persons seeking information about bitcoin wallets and trading accounts and collaborating with other authorities on criminal investigations. Since January 2019, the agency has sent over 10,000 letters to taxpayers with virtual currency activity, inquiring about their activities and gathering information about suspected tax avoidance.
Reporting of virtual currency by third parties such as financial institutions, family offices, exchanges, wallet service providers, and business entities is limited, making it harder to comply and for the Income Tax Department to handle tax compliance problems.
Numerous virtual currency transactions are expected to go unreported on tax forms, in part due to ambiguous regulations and reporting thresholds that limit the number of virtual currency users exposed to third-party reporting.
By defining a reporting standard/form, the government can supply valuable information for completing tax returns and provide the Income Tax department with another weapon for addressing noncompliance.
Income tax has limited data on virtual currency compliance, in part because the information individuals use to declare their taxable income does not require them to indicate whether their income is derived from virtual currency use.
Similarly, information returns filed by third parties, such as employers, financial institutions, exchanges, or other businesses, to record taxpayer income or transactions do not include room for, or guidance to, specify whether the reported income or transactions involved virtual currency. Catax is a pioneering standards and technology solution in the fields of cryptocurrency bookkeeping, taxation, blockchain auditing, and reporting.