In its first survey into the trading of cryptocurrencies like Bitcoin, the Income Tax (I-T) department has found that there are six lakh active cryptocurrency traders — out of the total 25 lakh registered to trade — in nine cryptocurrency exchanges across the country.
The survey found that crypto- currency worth Rs 17,800 crore has been traded on the exchanges, with a 25-year-old who invested Rs 25 lakh holding Rs 360 crore in bitcoins after carrying out trade worth Rs 760 crore, since the initial investments in the decentralised currency.
The I-T department’s Bengaluru unit carried out the survey in the second week of December as part of an exercise to gather “evidence for establishing the identity of the investors and traders, transaction undertaken by them, identity of the counterparties, related bank accounts used, etc’’.
Based on the findings of the survey, the state unit of the I-T department has communicated to its counterparts across the country the manner of assessing virtual currencies for tax purposes. It has advised that cryptocurrencies held for long periods of time by investors should be viewed as capital assets. Similarly, cryptocurrencies of frequent traders of the virtual currencies should be seen as business income.
Though the Finance Ministry and the Reserve Bank of India have not accorded legal sanctity to cryptocurrencies — which some economists call an “asset bubble” — and have equated them to ponzi schemes, the I-T department is looking at holdings in the trust-based virtual currency system that evolved on the Internet for tax assessments.
“The wealth in cryptocurrency is notional unless the currency is liquidated. We have not been able to find the amount that has been liquidated and this exercise is still on. It is a difficult task since there is no trail available of the liquidation,’’ said an I-T official.
The official said a key factor which helped the department track the total number of investors in the cryptocurrency market was the strong KYC policy (Know Your Customer) followed by the currency exchanges — while there are 11 such exchanges across the country, only nine are active.
“While there are 25 lakh people registered to trade in cryptocurrencies, only six lakh have provided the KYC details that are mandatory for trading, and only these people have traded on the exchanges,’’ said the official. Most of the people active on the crytocurrency exchanges are in the 25-35 years age group, tech-savvy and keenly aware of the cryptocurrency market.
Cryptocurrencies are based on blockchain technology, and as many as 1,381 types of these currencies are reported to be in existence. The most well-known is Bitcoin, which currently has a market cap of $283 billion. Till about five years ago, the number of traders in Bitcoin was estimated to be around only 50,000 in India. That number has grown as the value of the currency, which is deflationary in nature, has risen rapidly in recent times. While one Bitcoin was worth around Rs 15,000 till a couple of years ago, it is now in the range of Rs 10 lakh.
The maximum number of Bitcoins that will be available is 21 million, of which about 14 million have been created since the currency appeared on the Internet in 2009. Only 40 per cent of the 21 million that will be created by 2142 will be in circulation, say cryptocurrency experts.