The Income Tax Department will monitor every transaction on the crypto exchange as the 30 per cent ‘crypto tax’ proposed in the Union Budget takes effect from 1 April 2022.
Income tax officials have been instructed to do so by the Central Direct Taxation Board (CBDT), the highest body of the income tax department, officials told ANI.
A senior Finance Ministry official said, “Our officials will be closely monitoring the Cryptocurrency exchanges numbering about 40 where transactions in major coins such as Bitcoin, Etherium are underway.”
Officials told ANI that out of 40 cryptocurrency exchanges, 10 were involved in the sale and purchase of cryptocurrencies and their turnover ranged from Rs 34,000 crore to Rs 1 trillion.
The official said apart from crypto exchanges, IT experts will also track crypto transactions through reporting entities.
The new tax regime on cryptocurrencies will fall under section 285BA and subsection (k) of the IT Act. Where under rule 114 E, a person is required to report the financial statements specified in the statement of financial transactions (SFT), any person responsible for audit under section 44AB (Such as Individuals, HUFs, firms, etc.).
The official said that by July 1, 2022, when the department will start deducting 1 percent Tax Deducted on Resources (TDS) on crypto transactions, the department will find it easier to track crypto transactions.
On February 2 JB Mohapatra, Chairman, Central Direct Taxation Board (CBDT), in an interview to ANI said that tracking and tracing these crypto investors is very difficult. The TDS provision will now assist in tracking and tracing people who are in this business and making a profit but not filing it in their income tax returns.
Apart from tracking through TDS they can be tracked through reporting entities. The imposition of a 30 per cent tax on digital asset revenue, as announced in the Union Budget 2022-23, will lead to huge tax collection as the turnover of the top 10 crypto exchanges in the country is around Rs 1 trillion, Mohapatra said.
Mohapatra said, “During our pilot project on crypto, we found it operates on four models.”
“People trade in crypto but they don’t file it in their income tax returns. Crypto traders who file their income tax returns have no clues to crypto trading. The third model, we found there were details of crypto trading but their estimates of stock trading or cryptos were wrong.
“The fourth model shows details of crypto profits in their income tax returns but they show it as income from other sources, income from capital gains, or income from business. In suspicious cases, income tax returns are not filed. This is very troublesome for us,” the chairman said. CBDT.