Here’S How The IT Department Cracked Down On Suspected Crypto Tax Evaders

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In the past three years, the Center has clamped down on crypto tax evaders by sending them notices under Section 131 of the Income Tax Act. The department even summoned a few to the IT office to explain the financials in order to bring profits under the tax net.

These details were shared in a series of tweets by Naimish Sanghvi, CEO of Coin Crunch India. “Here’s how the IT department has sent notices to suspected tax evaders, the process is lengthy and ongoing,” read his post.

Here’s how the IT department has sent notices to suspected tax evaders, the process is long and on going.

➡️ In 2020, 2021 and 2022 – IT department began sending notices to crypto traders from 2017-18. These notices were based on section 131. A notice to collect data.1/7— Naimish Sanghvi (@ThatNaimish) May 2, 2022

Taxmen then compared the data provided to them by the crypto traders with the one that they already had. “If there was a mismatch, then they took further action,” Sanghvi wrote.

Suspected tax evaders were sent notices under Section 141A, which allows residents to clarify their status and submit proof of filing their assessment.

Once the income tax officials receive information under Section 141A, an officer will assess the details. If the details are not adequate, the officials will pass an order and send notices under Section 148, giving the evader a final chance to file a new tax return, correctly.

In case the resident fails to file the new tax return or the officers find it unsatisfactory, an order will be passed summoning the resident to meet the officers online or offline, Sanghvi said. The IT officials also scrutinize accounts of crypto traders to ensure that profits do not go untaxed.

A number of crypto traders do not withdraw the money from the cryptocurrency exchanges and transfer the sale proceeds to their bank accounts, Economic Times had quoted an exchange official as saying last year.

“They may let the money bind with the exchange so that they can buy as soon as crypto prices dip. In the process, some profits may go untaxed,” the official had said.

According to the official, the IT department may also check whether the full tax was paid to the government after the funds received from sale are moved to a trader’s bank account.

During the process of evaluation, if the tax officials are not satisfied with the information at any point of time, they may issue a demand notice under which a certain amount of tax and penalty has to be paid by the resident before appealing against the order.

At present, a number of people have been issued notices under Section 148. “Year 2022/23 will be interesting as we find more information on what the IT department is doing with suspected tax evaders in the crypto ecosystem,” Sanghvi said.

Meanwhile, the Center recovered around Rs 95.86 crore, including interest and penalty, from 11 crypto exchanges for evading goods and services tax (GST), Pankaj Chaudhary, minister of state for finance, said last month.

The GST investigation department unearthed total tax evasion of Rs 81.54 crore by crypto exchanges. The minister, however, did not provide a timeline for these investigations.

(Edited by: Sudarsanan Mani)

First Published: May 02, 2022, 03:01 PMIST

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