We have been studying crypto sector for the past five years: JB Mohapatra

We now have sufficient working knowledge as to how the sector works, and in what manner surplus is being generated, says Mohapatra

A day after the presentation of the Budget, JB Mohapatra, chairman of the Central Board of Direct Taxes (CBDT), said the department had been closely studying the cryptocurrency sector, and expressed confidence that the taxman will be able to track and tax income from digital assets. He also made it clear that the department does not concern itself with legality. In conversation with Arup Roychoudhury and Asit Ranjan Mishra, Mohapatra said there has been demand from the industry to streamline capital gains taxes and that could happen, going ahead. Edited excerpts:

The major announcement was tax on income from crypto and other related digital asset transactions. While formulating this, did the income tax department have any data of how big the sector is?

On digital assets, the income tax department has been working since 2017. It has been doing a lot of studies — real case studies of people dabbling in the crypto space. We now have sufficient working knowledge as to how the sector works, and in what manner surplus is being generated. We wanted to know the depth, penetration and the coverage of the sector. Roughly, there are 40 crypto exchanges. Out of 10 are significantly big exchanges, with turnover averaging around Rs 30,000 crore a year. While working out the various models, our department encountered 3-4 varieties. Namely, investors who would have invested a lot but would not be filing income tax returns. Also, investors who will file returns but will not declare surplus or deficit from crypto trade and investors who will declare profit or loss from crypto but there will be discrepancies in what they buy and sell. And the fourth category is when investors show it for the purpose of taxes but there is a whole lot of ambiguity among taxpayers, and even in the department, as to how it will be treated. 

So the CBDT is confident it will be able to monitor crypto transactions?

Probably this is the first instance in the history of CBDT in which before the market could be regulated, the department has been mandated to get involved in taxation. Market will take time to get regulated. But the taxation part has been taken prior to the regulation part, which is all the better for us. The income tax department doesn’t look into the legality of a transaction. It only looks at the taxability. The department has great clarity and great conviction in this particular thing.

The Budget reduced surcharge on capital gains for consortiums and on transfer of assets. But the industry has been asking for an overall streamlining of capital gains tax.

It was not just this demand on capital gains. There were various other requests on relooking the whole capital gains tax structure, but probably this was not the year in which you could have had a relook. We did not try to do too many things with capital gains. Probably, there will be a better time in the coming year in which you can have a look at that.

How do you plan to monitor those assessees who may have miscalculated their liabilities and now have been given two additional years to file the returns?

There is a Section called 135A, which empowers the department to have verification. So, under that, we issued an e-Verification Scheme last year in which data from various sources are stored, analysed, processed and transmitted to the field to do proper inquiry. And, if still, dissatisfaction is there with regard to the reply of the assessee, then only reassessment is done at the level of the assessing officer.  Suppose it takes two years, this two years is good enough for the taxpayer to realise that something has been omitted by him. He must file the return or if he has filed a return, he must correct it. It is applicable from April 1, 2022.