Income Tax Department Raises Alarm on Cryptocurrency Risks, ETCFO
NEW DELHI: The income tax department on Wednesday flagged major risks associated with virtual digital assets (VDA), such as cryptocurrency, joining the Reserve Bank of India in opposing the entry of these instruments.
In a presentation to the parliamentary standing committee of finance, the tax authorities flagged as to how anonymous, borderless and near-instant value transfer made it possible to move funds through a system without regulated financial intermediaries, a person familiar with the discussions told TOI.
Besides, offshore exchanges, private wallets and decentralised platforms made it very difficult for the authorities to detect taxable income and also made the holdings opaque since the beneficial owners were not easily known.
Jurisdictional limitations with offshore VDA activity were also flagged as multiple jurisdictions may be involved, with little ability to check flows, making verification and recovery of tax dues virtually impossible. Although there have been efforts in recent months on sharing of information, it remains difficult, inhibiting the ability of tax officials to undertake proper assessment and reconstruction of transaction chains.
India is among a group of countries which have so far been reluctant to allow cryptocurrency and stablecoin despite intense lobbying and pressure from some govts. Earlier, on multiple occasions, RBI had flagged its concerns, including the lack of any underlying asset making it a risky bet for investors, and even enforcement agencies are wary especially due to VDAs being instruments that can be used for money laundering and terror financing.
The tax department said that since crypto platforms operate overseas, enforcement action may be tough, including issuing summons, or TDS collection. Many of the exchanges are also unregistered with the Financial Intelligence Unit and are outside the ambit of the tax department.
Indian tax authorities have sought to build in safeguards, including TDS, to track beneficiaries and have also mandated registration of entities dealing in crypto and other VDAs.
