Following the recent surveys at nine cryptocurrency exchanges across cities, reports suggest that the Indian Income Tax Department is now looking into tax evasion possibility by high networth individuals (HNI) who are investing in bitcoin.

According to the Press Trust of India, the IT Department is issuing notices to over 4 lakh HNI after it discovered that of the estimated 20 lakh entities registered on domestic cryptocurrency exchanges, over 4 lakh were actively carrying out transactions and investments in digital currencies.

"Those individuals and entities whose records were recovered by the department are now being probed under tax evasion charges. Notices are being issued and they will have to pay capital gains tax on the bitcoin investments and trade," a senior official told PTI.

The official said that the surveys were undertaken for "gathering evidence for establishing the identity of investors and traders, the transaction undertaken by them, identity of counter-parties, related bank accounts used, among others."

The IT department jumped into its action against digital currency traders in the country at a time when bitcoin price has been skyrocketing to fresh new highs. At the time of writing, BTC/USD is trading at $17000.

More recently, the Reserve Bank of India (RBI) issued a warning on the risks of digital currencies such as bitcoin, marking the second time the central bank has cautioned cryptocurrency users this year alone.

Earlier this year, the Finance Ministry established an intergovernmental panel to look into the regulatory framework for digital currencies such as bitcoin in the country and globally. The panel has submitted its report.