Obligation to furnish information on transaction of crypto-asse

509(1)

Any person, being a reporting entity, as prescribed, in respect of a crypto-asset, shall furnish information in respect of a transaction of such crypto-asset in a statement, for such period, within such time, in such form and manner and to such income-tax authority, as prescribed.

509(2)

Where the prescribed income-tax authority considers that the statement furnished under sub-section (1) is defective, he may intimate the defect to the person who has furnished such statement and give him an opportunity of rectifying the defect within thirty days from the date of such intimation or such further period as may be allowed, and if the defect is not rectified within such period, the provisions of this Act shall apply as if such person had furnished inaccurate information in the statement.

509(3)

Where a person who is required to furnish a statement under sub-section (1) has not furnished the same within the specified time, the prescribed income-tax authority may serve upon such person a notice requiring him to furnish such statement within a period not exceeding thirty days from the date of service of such notice and he shall furnish the statement within the time specified in the notice.

509(4)

If any person, having furnished a statement under sub-section (1), or in pursuance of a notice issued under sub-section (3), comes to know or discovers any inaccuracy in the information provided in the statement, he shall within ten days inform the prescribed income-tax authority, the inaccuracy in such statement and furnish the correct information in such manner as prescribed.

509(5)

The Central Government may, by rules prescribe—

• (a) the persons referred to in sub-section (1) to be registered with the prescribed income-tax authority;
• (b) the nature of information and the manner in which such information shall be maintained by the persons referred to in clause (a); and
• (c) the due diligence to be carried out by the persons referred to in sub-section (1) for the purpose of identification of any crypto-asset user or owner.

509(6)

In this section, “crypto-asset” shall have the meaning assigned to it in section 2(111)(d).

Explanation

Section Summary:

Section 509 of the new income tax law introduces obligations for reporting entities to furnish information about transactions involving crypto-assets. This section aims to bring transparency and accountability to crypto-asset transactions, ensuring that such activities are properly documented and reported to the income-tax authorities. Crypto-assets, as defined in Section 2(111)(d), include digital or virtual currencies like Bitcoin, Ethereum, and other similar assets.

Key Changes:

1. New Reporting Requirement: This is a new provision specifically targeting crypto-asset transactions. Previously, there was no explicit requirement for reporting entities to disclose such transactions.
2. Defective Statements: Introduces a process for rectifying defects in the submitted statements, with a 30-day window for correction.
3. Non-Compliance Penalties: Failure to furnish the statement or rectify defects can lead to the application of penalties as if inaccurate information was provided.
4. Dynamic Updates: Requires taxpayers to update the authorities within 10 days if they discover inaccuracies in their submitted statements.
5. Central Government Rules: The Central Government is empowered to prescribe rules for registration, information maintenance, and due diligence for crypto-asset transactions.

Practical Implications:

• For Reporting Entities: Entities dealing with crypto-assets (e.g., exchanges, brokers) must now maintain detailed records of transactions and submit periodic statements to the income-tax authorities. This increases compliance burdens but also ensures better tracking of crypto-related activities.
• For Taxpayers: Individuals or businesses involved in crypto-asset transactions must ensure their reporting entities are compliant. Non-compliance by the reporting entity could indirectly affect the taxpayer.
• For Authorities: This section provides the income-tax department with a mechanism to monitor and regulate crypto-asset transactions, reducing the risk of tax evasion.

Critical Concepts:

• Reporting Entity: Refers to entities like crypto exchanges, brokers, or other intermediaries involved in crypto-asset transactions. These entities are required to report transaction details.
• Crypto-Asset: Defined in Section 2(111)(d), this term includes digital or virtual currencies and other similar assets.
• Defective Statement: A statement that is incomplete, incorrect, or not in the prescribed format. The taxpayer has 30 days to rectify such defects.
• Inaccurate Information: If a statement contains errors and is not corrected within the specified time, it will be treated as inaccurate, potentially leading to penalties.

Compliance Steps:

1. Identify Reporting Obligations: Determine if you are a reporting entity as per the rules prescribed by the Central Government.
2. Maintain Records: Keep detailed records of all crypto-asset transactions, including the nature of the transaction, parties involved, and transaction value.
3. Submit Statements: Furnish the required statements within the prescribed time and in the specified format to the designated income-tax authority.
4. Rectify Defects: If notified of a defect, rectify it within 30 days (or the extended period allowed).
5. Update Information: If inaccuracies are discovered after submission, inform the authorities and provide corrected information within 10 days.
6. Follow Due Diligence: Adhere to the due diligence requirements prescribed by the Central Government for identifying crypto-asset users or owners.

Examples:

1. Scenario 1: A crypto exchange processes 1,000 Bitcoin transactions in a month. Under Section 509(1), the exchange must submit a statement detailing these transactions to the income-tax authority within the prescribed time.
2. Scenario 2: The income-tax authority identifies that a submitted statement lacks transaction dates. They notify the exchange, which has 30 days to correct the defect. If the exchange fails to do so, the statement will be treated as inaccurate, potentially leading to penalties.
3. Scenario 3: A taxpayer discovers that a transaction involving Ethereum was incorrectly reported. Under Section 509(4), they must inform the income-tax authority and provide the correct information within 10 days of discovering the error.

This section ensures that crypto-asset transactions are brought under the tax net, promoting transparency and compliance in a rapidly evolving financial landscape.