Income Tax department in India is looking at how they can impose tax on Bitcoin miners in India in the long run. However, they will not start this until RBI gives a clean chit to the coin which it had warned against recently.
IRS officers had visited the office of Sathvik Vishwanath, CEO and founder of Coinmonk and Unocoin around the same time ED raided offices of Buysellbit.co.in and RBItco. He had all documents in order and had been paying taxes, so it turned into a technical discussion. The officials then issued a summons and asked him how they could tax Bitcoin miners in India. These officials even took some of the Bitcoin related documents from his companies. Curiously, Vishwanath says that these same investigators had contacted him asking for free passes to the Bitcoin conference that was organized in Bangalore last year.
IRS is thinking of imposing tax based on the currency’s value at the time of mining. Vishwanath has asked them to authorize Bitcoin exchanges in India first, so that people can convert the currency they have mined into Rupees immediately. “I have also suggested that they accept taxes directly in the form of Bitcoin if a miner is finding it difficult to pay in rupees,” he says. The IT officials he met also asked him to deduct TDS while trading Bitcoin in India and pass on that amount along with the trader’s PAN details to the department.
Vishwanath says that it didn’t feel much like an investigation into his companies and was more of a technical discussion. He met Deputy Director of Investigation and Director of Investigation wing and they have asked him to submit a paper detailing how Bitcoin works, how it can be gauged, how many people in India has Bitcoin and how we were reporting our taxes etc. The income tax department apparently did not have any issues with the way his company was being run as he had been paying his taxes. However, they have asked him to seek legal advice before relaunching the site as there might be other departments who might have a problem with the currency.
The cost of mining a Bitcoin is very high because of the number of compute cycles that are needed to mine a single Bitcoin or even a block. Apart from the time taken, the amount of investment required to mine faster is very high and it’s no longer viable for a hobbyist. This is why a lot of miners pool their resources together to create the equivalent of a render farm. That being the case, it’s not clear if IRS will get anything at all from Bitcoin miners in India, because after deducting expenses incurred such as electricity and other utilities there will be hardly any profit in the short terms. Profit if any, will come in the long run when they sell the coin or use it to make a purchase.
That said, it is good that IRS is genuinely trying to understand how the system works and how they can be part of it instead of clamping down its operations out right. Hopefully their feedback on the ecosystem might soften ED’s and RBI’s stance on Virtual Currencies.