How to reply income tax notices under section 148 for bitcoin transactions?
Some days back, we read the news in the newspapers about income tax raids on major crypto exchange platforms operating in India and the effect of this news is coming out now. On the basis of the information collected from these exchanges during the course of raids, the Income Tax Department has issued notices under section 148A in the last two weeks of March 2022 to a large number of crypto traders across India.
Such crypto/ bitcoin traders might be confused about the manner they should deal with these notices. Our reply to this is that you should stay calm and collect the appropriate details sought in the notice and give a detailed reply point-wise-point. Before making any reply, you might like to understand certain provisions which will guide you in taking an appropriate legal course.
What is Section 148A of the Income Tax Act?
Income Tax Act empowers the department to assess, re-assess or re-compute the total income of any individual if the department has a reason to believe that there is a case of income escapement. For this purpose, a notice is issued by the department u/s 148A of the Income Tax Act. The notice given u/s 148A will also contain the information on the basis of which income escapement is alleged in the case of a taxpayer. The assessing officer will also have to provide information supporting his or her claim.
The assessing officer is required to provide an opportunity of not less than 7 days and not more than 30 days to the assessee to furnish his/her explanation. The assessing officer is required to consider the reply furnished by the assessee and decide whether or not it is a fit case to issue a notice under section 148 by passing an order with the prior approval of the specified authority. It is seen in many cases that the department has issued notices to bitcoin traders/ crypto traders even in March end looking into the compulsory period of 7 days.
Further, it should also be kept in mind that a notice under section 148 cannot be issued if the time period of 3 years has elapsed from the end of the relevant assessment year. However, in certain cases, notice u/s 148 can be issued beyond 3 years also. These are the cases where the amount of income escaped from the assessment is Rs. 50 Lakhs or more. In such cases, the time period will be 10 years instead of 3 years. For calculating the time limit of 3 years/ 10 years, the time allowed for responding to the notice issued under section 148A shall be excluded.
Now the next question is:
How to make a reply to the notice under section 148 for bitcoin transactions?
This is one of the toughest questions to answer in the present scenario. As you might be aware that the Government has taxed crypto transactions in Budget 2022. For this purpose, the Government has introduced a new section 115BBH in the Income Tax Act, 1961 according to which a tax of 30% plus surcharge and cess shall be levied on the crypto profits. The taxpayer shall declare their crypto profits under the head “Income from Other Sources”. But the problem is that this tax is applicable from Assessment Year 2023-24 (F.Y. 2022-23).
So, what should be your stand for any crypto or bitcoin profits in response to IT notices issued for any assessment year before A.Y. 2023-24? Please note that you can not escape tax on such crypto profits of earlier years. But it is also true that there is no specific provision for taxing crypto profits in the Income Tax Act up to A.Y. 2022-23.
In these circumstances, you are having two options- Either treat crypto gains as (i) Business Income or (ii) Capital Gains. This classification will depend on the investor’s intention and nature & frequency of the transactions. If there are frequent trades and volume is significant, crypto gains may be shown as “business income”. The department will ask you to file your income tax return in response to the notice issued under section 148. Don’t forget to include crypto gains in such income tax return.
After filing the income tax return, the IT department will issue you a query letter asking you to give a reply to specific queries made in the query letter. You might have to take the guidance of an expert for this purpose. Please note that all the replies are to be furnished online through Income Tax Portal. As the IT department is also new to the crypto world, you should take caution while making replies to the notice issued u/s 148.
For any expert assistance for IT notices for crypto transactions u/s 148 contact us on: 09660930417
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