The enforcement directorate (ED) plans to scrutinise bitcoin exchanges to check for potential violations of foreign exchange rules by the exchanges and cryptocurrency investors, said two ED officials aware of the matter.
The move follows a survey by the income tax (I-T) department to determine how tax assessees were treating bitcoin investments. If the I-T department concludes that bitcoin is a currency, it would establish a clear violation of the Foreign Exchange Management Act (FEMA), one of the officials said.
“It is income-tax (department) which is heading the investigation. If it finds any violation of FEMA, we will launch an investigation. We are waiting for income-tax (department) to form its opinion on how to treat bitcoin,” said the official on condition of anonymity.
On 13 December, the I-T department conducted a survey on bitcoin exchanges across the country to see how the digital currency was being treated by tax assessees—as a commodity, currency or a financial security.