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Indian Tax Authorities Seek Clarification on Bitcoin

| Published on January 3, 2014 at 13:51 BST

Just a few days after the Reserve Bank of India (RBI) issued a digital currency warning, Indian authorities started cracking down on local bitcoin exchanges.

Within two days the first raids were carried out, although the owners of the platforms were not arrested and, at present, it does not appear that they have been charged with any crime.

The raids were carried out by India’s Enforcement Directorate, but now it seems that their colleagues at the Income Tax Department are just as keen to flex their muscle on digital currency outfits.

The Hindu reports that taxmen paid a visit to Tumkur-based Coin Monk Ventures, a bitcoin mining startup aiming to bring bitcoin awareness to the public. Coin Monk founder Satvik V said:

“They took interviews of my employees and were happy that Coin Monk was a properly registered company. Much of the discussion that took place was over how bitcoin actually works and how income tax can be levied on miners and exchanges.”

Good morning sir, we would like a free bitcoin lecture

Oddly enough, Satvik’s description of the visit leads us to conclude that it was a courtesy call. He said the taxmen were interested in how bitcoin works and they were wondering whether it would be possible to create a database of digital currency users in India.

It did not end there. Satvik was summoned to meet Income Tax Department officials in Bangalore:

“They have asked me to submit a technical paper on how bitcoin works, and, more importantly, what role a government-authorized exchange could play.”

It is not every day that the executive branch asks people that it is supposed to be regulating to explain what they are supposed to be regulating in the first place, or for that matter to submit their own suggestions.

What government-authorized exchange?

The whole affair may have gone under the radar had it not been for the last part of Satvik’s statement. The RBI has made it clear that it does not wish to deal with digital currencies and that it does not know what to do about it.

Indian exchanges cannot get regulatory approval and the RBI is apparently happy to keep it that way, effectively rendering bitcoin exchanges illegal in the world’s second most populous country.

However, if the Income Tax Department is going around and asking bitcoiners to come up with their ideas and talking about government authorized exchanges, it might not be as bad as it seems.

While it is easy to view all branches of government and central banks as a monolithic structure, their goals do not always match or overlap.

Central bankers don’t want bitcoin around for a number of reasons, while taxmen take a more pragmatic approach. When they see something that can be taxed, they tend to do what they do best – tax it. However, to do that they need a legal framework.

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