Tax Before Recognition In India Bitcoin Row

As the old adage goes “there are two certainties in life – death and taxes”. So it seems that one thing Bitcoiners in India can be certain of sometimes soon is the mighty hand of the tax department. While the country’s authorities have clearly shown to be averse to digital currencies, the tax department does not seem to be following suit.

It seems that digital currencies have caught the eye of the Indian taxman as tax officials paid a visit to a local Bitcoin mining startup, Coin Monk Ventures. But it was not raid or an audit. Instead the tax officials allegedly asked for advice on Bitcoin and in an uncharacteristically friendly manner. So says Coin Monk Ventures founder Satvik V.

Indian Authorities Shun Bitcoin

The visit may not be newsworthy had it not been for recent events in India. Authorities in the second most populous nation in the world have not been too enthusiastic about digital currencies. The Reserve Bank of India issued warnings about Bitcoin volatility and Ponzi schemes in December 2013. But it did not end there.

The warning was enough to have Indian exchanges running scared. Within days, several of the country’s Bitcoin exchanges shut down. And then authorities flexed their muscles. Government officials subsequently carried out raids on the offices of, the country’s largest Bitcoin trading platform. There was talk about tax evasion, money laundering and terrorism funding flying around.

Initially Indian authorities continued talking tough, sometimes falling short of saying that they will ban digital currencies. But in recent days they seemed to have relaxed their approach. Officials claim that the Reserve Bank of India has no plans to regulate Bitcoin and other digital currencies. More specifically they did not have the intention to help develop a regulatory framework for digital currency thereby leaving users and exchanges in limbo.

Now They Want To Tax It

Despite the negative sentiment from the Reserve Bank of India in particular, the tax man is more pragmatic and wants to understand digital currencies further. Obviously in order to get their share of the pie. However, to do so they will need some sort of legal framework in place, contradictory to their recent stance.

Some may see it as a hypocrisy. Others may see it as poor communication between government departments. But there may be a silver lining to this cloud hovering over the Indian Bitcoin community. It may ultimately force the government to recognize digital currencies, develop a regulatory framework that can be applied locally and allow Bitcoin trading to continue unimpeded.

But is it all just wishful thinking? According to Satvik V, the tax officials were interested in how Bitcoin works and even queried about creating a database of digital currency users in India. It seems the visit was not just on a whim. They subsequently summoned Satvik to meet tax officials in Bangalore, India’s IT hub.

Hope On The Horizon?

For now though, the Reserve Bank of India has tied the hands of Bitcoin exchanges. Without any regulatory framework in place, Bitcoin does not get the recognition that is necessary for exchanges to adhere to all the legal requirements. Owners of exchanges are at risk of being charged if it is proved that any criminal, tax dodgers or terrorists used their services irrespective of whether they were aware of the nefarious activities of these users or not.

For today at least, there is some positive sentiment in the air. Many an Indian Bitcoiner will have their fingers crossed, hoping that the tax authorities will be able to change the attitude of the Reserve Bank of India at some point.

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