ED plans to probe Bitcoin exchanges across the country

Further tightening its grip on the blockbuster virtual currency of the century, Enforcement Directorate has plans to probe Bitcoin exchanges to check for any violation of Foreign Exchange rules, Livemint reported quoting two officials from the ED.

Prior to this, the Income-Tax department on December 13, conducted surveys in Delhi, Mumbai, and Hyderabad. I-T investigative teams began surveys to gather information related to the dealer’s source of income, bank accounts, and tax liability, among others, amid tax evasion concerns Business Standard had reported.

Although a clarification from the government on Bitcoin regulation and taxation is awaited, a source in the I-T department said capital gains tax must be paid on profits made from the sale of Bitcoin. “Bitcoins are not recognised as currency. So, capital gains tax liability arises at the time of sale of bitcoins on gains made on it, whether held for short-term or long-term. They are not tax exempt,” the official said.

Taxman and ED are currently pondering upon whether Bitcoin should be treated as a currency or as a commodity, both of which will constitute seperate violations in the tax net. If the cryptocurrency is to be treated as a currency, then the traders and exchanges will be violating the provisions of the FEMA act, one of the official quoted by Livemint said. 

However, if Bitcoin is to be treated as an investment commodity then the exchanges and traders will have to pay GST on it. 

Speaking at a CII Financial Markets Summit, Ajay Tyagi, chairman of Sebi, said: "Bitcoin does not pose a systemic risk right now but the area can't be ignored. The ministries of finance and information technology are looking into it, in consultation with the Reserve Bank of India (RBI)" Business standard had reported on Wednesday. 

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Finance Minister Arun Jaitley had said last week that India does not recognise cryptocurrency as legal currency 'as of now'. The Reserve Bank of India (RBI) has on three occasions warned against investing in bitcoins. "As such, any user, holder, investor, trader, etc, dealing with virtual currencies will be doing so at their own risk,” it said on an earlier occasion, BS had reported earlier.

Earlier this month, there was a spurt in the value of a bitcoin. It rose from under USD 10,000 at start of the year to close to USD 20,000, before a sharp 20 per cent plunge within hours.