Exclusive: Government Already Has Data On Crypto Sector, Is Watching Large Players, Says Tax Body Chief

When Finance minister Nirmala Sitharaman announced a 30 per cent tax on crypto assets in the Union budget, she had already done her homework on the nature of crypto exchanges, the size of investments being made in this virtual asset and how exchanges do investor verification. The government has zeroed in on investors who make large investments in the crypto asset. In an exclusive interview with Outlook Business, chairman of the Central Board of Direct Taxes J.B. Mohapatra says that the government has gathered enough data on the crypto sector to assess its revenue potential and will place it at the government stakeholders' conferences to formulate a policy. He also comments on the government’s efforts to maximise tax revenue in the next financial year and why it has not given any tax concessions to individual taxpayers.

Here are the edited excerpts:

Finance minister Nirmala Sitharaman has announced a 30 per cent tax on profits made on the transaction of crypto assets. Has the Income Tax Department collected enough data on crypto transactions in India and what do you plan to do with that data?

We have data. This data is for understanding the market as well as the investors who are participating in the market. It was used for the assessment of individual investors to understand where there was a high risk, say, if someone traded in Rs 10,000 crore of cryptocurrencies. We would rather concentrate on them than a small investor.

These individual data points are available with us, and we will use them when the government stakeholders’ conference takes place. I believe that the information [on crypto investors] should be a part of those deliberations. These can be our inputs to help formulate the policy. But, it is specific data related to specific investors or the exchanges. The broad areas of enquiry included finding the limitations in operations of an exchange and whether KYC norms are followed for vetting investors or the Aadhaar number details are furnished. Our idea is to get taxes with respect to profits in the crypto trade.

What was the thought behind not providing taxation relief of any kind in the budget, considering the hit on savings and income due to the Covid-19 pain? Section 80C has not been expanded for many years now.

On the tax foregone or the revenue impact of these incentives, we computed that 6.3 crore individuals are getting incentives. The revenue impact of the incentives given to them under Sections 80C, 80DD or 80DDB for the financial year 2019-20 would be Rs 1.55 lakh crore. Of this, the impact of Section 80C alone is Rs 86,000 crore. There is no need to expand the scope of Section 80C further.

There is a whole range of things that are packed under Section 80C. The basic reason for not expanding any of its provisions for individual taxpayers is that we did not want to give a cosmetic touch-up to tax rates and surcharges. Only a meaningful intervention has been made in the surcharge regime with respect to capital gains income. It has been brought down to 15 per cent from the highest rate of 37 per cent. Then, the surcharge for the cooperatives has been aligned. Also, the surcharge has been streamlined for companies being formed as joint ventures through associations of persons. The alternate minimum tax for co-operatives has also been pared down at par with corporates. 

A meaningful intervention has been made for the neediest. This is a year in which we could not have done anything more than what was provided in that budget for the simple reason that the uncertainty of the future was looming large. We were preparing for the long haul.

Is there an estimate on what will be the tax amount forgone because of the alignments in rates and surcharges?

The revenue impact will be minimal. We have done two things for the cooperatives. One is aligning the surcharge. It was 12 per cent across the board, but for the companies, it was seven per cent up to Rs 10 crore and 12 per cent beyond Rs 10 crore. We have aligned it now.

The second thing is that cooperatives say that they are a smaller version of FPOs (farmer producers’ organisations). They are also styled as companies. Cooperatives’ would ask why they were being discriminated against FPOs. We saw a point in the argument. A company pays 15 per cent of minimum alternative tax. We made the same provision for the cooperatives also, which earlier stood at a higher rate of 18.5 per cent. Now, it has been brought to 15 per cent. We want them to be competitive among themselves and also competitive in relation to the FPOs.

Do you expect minimum revenue impact due to the capping of LTCG as well? 

No, it will be more impactful. Section 111 Section 112A of the Income Tax Act on capital gains are already covered. If any capital gains are generated under those sections, the surcharge is only 15 per cent. It is not 25 per cent or 37 per cent. We had earlier missed out on Section 112A. This was an inadvertent omission. We have included now Section 112. The tax on any capital gain other than from the listed shares will be capped at 15 per cent. It will have a revenue impact, but I cannot say exactly by how much.

The tax collection this year has been good. Despite that, the next year’s projections seem to be on the conservative side.

I disagree with this observation. Just because something is getting achieved does not make it easy to achieve. It involves a lot of effort in the field.

Look at the given numbers. The last year's actual collection was only Rs 9.24 lakh crore. This year’s target started as Rs 11.08 lakh crore, which is higher by Rs 2 lakh crore, a 20 per cent hike on the actuals of the last year. And, once we are reaching Rs 11.08 lakh crore, the target has been set at Rs 12.5 lakh crore, which is an increase of Rs 1.42 lakh crore. These are not easily achievable numbers, irrespective of what statisticians and economists say.

The next year’s target is Rs 14.2 lakh crore and for a year after that, it is Rs 15.83 lakh crore. In the department, we look at each year as a special year in itself. The sectors of the economy perform differently each year. States perform differently from year to year. To read down the total collection with no idea as to how the sectors perform looking at the last 10 years trends should not be a yardstick. 

And, how do you account for the collections of this year? Was there any tool available with the economists at the beginning of the year about assessing the collections? When the economy flounders, taxes also dip. There must be a good reason as to why it has dipped. But, it takes time to understand why it is going up. It is a combination of factors, but nobody predicted that the collections would be this high.

What do you think led to this hike in collections?

I would say that efforts of the [tax] department in getting the best out of the information available with it [had an impact]. Also, the realisation among taxpayers that the department has quality information which it shared with taxpayers through the improved Accounting Information System [also contributed]. It has opened up possibilities for the department and taxpayers to come clean. Reliance on more automation and the new Section 135A, under which we have notified the e-verification scheme, have been beneficial. That is helping us find stray bits of information to figure out whether it can yield additional tax. In the business circles, the consolidation and formalisation of businesses and the increased profitability of corporates have also been factors.

Does the government have any data on how many people migrated to the new income tax regime? 

Not yet. The returns have just arrived. The last date for filing them was December 31. Probably we will be ready with some kind of a preliminary idea in another four months.