Concerned that cryptocurrencies may lead to money laundering, Indian government agencies propose to control Bitcoin transactions

India's tax authorities have expressed concerns about investing in and trading in cryptocurrencies such as Bitcoin, fearing that such activities could facilitate money laundering.

As Bitcoin becomes more popular in India, many government departments are concerned that it will be abused by tax evaders and money launderers. According to the Economic Times, the Indian tax department is worried that cryptocurrency transactions "will become a channel for illegal capital flows and the transfer of black money."

Since India’s demonetization policy last year eliminated nearly 90% of physical cash overnight, the income tax agency and the Enforcement Directorate, the economic law enforcement and intelligence agency, have been closely probing large investments in cryptocurrencies.

A senior tax official said:

The massive investment going into this currency (Bitcoin) is problematic.

It is reported that the "Special Investigation Team" (SIT) appointed by the Supreme Court of India to investigate black money (money laundering) is preparing a report in which they will explain the information they have obtained and even recommend "control" of cryptocurrency transactions.

An unnamed official said:

The government is concerned about how it is being run...some unexplained money is going to flow into this sector.

In July, India’s Supreme Court reportedly asked the government and the Reserve Bank of India (the country’s central bank) to check bitcoin transactions to ensure they are not used for money laundering or terrorism financing.

The Indian Bitcoin industry has been “shunned” by the government for years and has not been regulated. Its popularity and acceptance have greatly increased, prompting the government to set up an interdisciplinary “Virtual Currency Committee” at the beginning of the year to study and implement a regulatory framework for digital currencies in India.

Therefore, the Indian government is likely to regulate the country’s digital currency industry, but is unlikely to impose a blanket ban. India’s regulation of the industry is likely to be accompanied by plans to tax Bitcoin.