Bitcoin Gold
A collection of bitcoin (virtual currency) tokens is displayed in this picture illustration taken December 8, 2017.REUTERS/Benoit Tessier/Illustration

In a major step to curb the use of bitcoin, the Indian government is planning to tax gains made by investors from the elusive cryptocurrency, according to a senior revenue department official.

"Those who have earned from bitcoin would have to give tax. Their source of income would also be asked and if they don't pay tax, action will be taken against them," Central Board of Direct Taxes (CBDT) Chairman Sushil Chandra was quoted by news agency ANI as saying on Tuesday.

CBDT is the statutory body that provides inputs for policy and planning of direct taxes in India.

A government panel to look into issues relating to cryptocurrencies is expected to submit an initial report in the current fiscal year, ending on March 31, SC Garg, Economic Affairs Secretary, told a private news channel on Monday.

This comes just days after Finance Minister Arun Jaitley, in his Union Budget 2018 speech, said the government doesn't consider cryptocurrency as legal tender, and will take all measures to eliminate the use of such currencies in financing illegitimate operations.

Governments around the world are grappling with how to regulate cryptocurrency trading, and policymakers are expected to discuss the matter at a G20 summit in Argentina in March.

India's central bank had already warned that those trading in virtual currencies were doing so at their own risk as the bank had not given a permit for any firm to deal in such cryptocurrencies.

Last month, India's income tax authorities sent notices to tens of thousands of people dealing in cryptocurrencies after a nationwide survey revealed transactions of more than $3.5 billion over a 17-month period.

On Wednesday, bitcoin rallied from three-month lows of $6,000 for the first time in six days, snapping a losing streak that had helped push overall losses in digital currencies to about $500 billion.