Mumbai, January 18, 2018

A 42-year-old textile trader and a resident of Mumbai who had received an income tax query for buying Bitcoins has replied that he has transferred his bitcoins to his younger brother in Dubai.

"I first converted my bitcoins lying in my hardware wallet to two separate crypto currencies— Gift BAT Basic Attention Token and Litecoin. Then I transferred that to my brother's crypto wallet registered with a UAE-based crypto currency wallet," he told ET.

About 300 kilometres from Mumbai, a 30-year-old diamond trader has done something similar. He, after approaching an agent, too "gifted" his cryptocurrencies to another resident of Europe, who he claims is his cousin. The only difference being, the trader got cash which was almost worth the value of the cryptocurrency on that day within next few hours at his doorstep.

Days after the income tax department sent a 28 question query to about 5 lakh bitcoin investors, many of them have replied to the tax authorities and are claiming that they no more hold the cryptocurrency as they have already gifted it. While some of the investors have actually transferred or gifted the bitcoins to their relatives and friends, in most cases this is just a traditional round tripping exercise where the seller gets cash for transferring the bitcoins, say people close to the development. As prices of cryptocurrencies start falling many investors are looking to cut their losses, but are using several tricks to escape taxes in India.

Tax experts point out that such manoeuvring may help these investors escape income tax; it may lead to other complications. "Transfer of bitcoins can be through the process of gift or sale; gift to a relative residing outside India will not attract any liability for payment of Income Tax. However gifting of bitcoin to non-resident relative may violate FEMA (Foreign Exchange Management Act) regulation," said Dilip Lakhani, a senior tax expert. People in the know say that in last fortnight or so, many investors have started "gifting" their bitcoins to their relatives outside India.

ET was the first to report last month that mega bitcoin gains for investors could attract about 30% tax.

[The Economic Times]