Transaction in Bitcoin under IT scanner for tax evasion

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India's tax authority fears that as Bitcoin popularity is growing at a rapid speed, it might trigger the creation of several e-Ponzi schemes and hence to safeguard investors against these risks, the tax department is investigating Bitcoin exchanges operating within the country.

According to the report, the virtual currency has recorded monthly trades of an estimated to be between Rs5,000 crore and Rs10,000 crore with an average 50,000 people registering everyday on Bitcoin exchanges.

Income Tax Department, therefore, on Wednesday carried out a survey at major Bitcoin exchanges across the country on suspicion of alleged tax evasion. As per reports, officials of the Bengaluru investigation wing have visited nine cryptocurrency exchanges so far in Delhi, Bengaluru, Hyderabad, Kochi and Gurugram.

The survey teams were reportedly armed with an assortment of software tools to capture exchange data, including "cloning and mirror imaging", and identified the accounts of a number of high-net-worth individuals.

In a notification, the central bank had said, "users, holders and traders of Virtual Currencies (VCs) including Bitcoins regarding the potential economic, financial, operational, legal, customer protection and security related risks associated in dealing with such VCs".

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"The income tax officials are gathering evidence to establish the identity of investors and traders, the transactions undertaken by them, the identity of counterparties, and the related bank accounts used, among other things", an income tax official told the PTI.

The tax official declined to comment on the central bank's concerns, saying the tax department was looking only into the tax implications. The tax department is seeking cases where a large amount of "black money" is said to have been siphoned off through the cryptocurrency route.

The I-T Department's move comes at a time when the unregulated cryptocurrency rose 1,000 per cent in a month, and showed no signs of letting in.

Previous year in November 2016, the government has performed demonetization of higher currency notes, in a bid to crackdown the black money and to shift towards a digital economy.

Bitcoin is referred as cryptocurrency and would be the first decentralized digital currency, as the system works without a central bank or single administrator.