Cryptocurrencies have been in the news recently because tax authorities believe they can be used to launder money and evade taxes. Even the Supreme Court appointed a special investigation team on black money recommended that trade in this currency be discouraged. Although it was reported that China banned some of its largest Bitcoin traders, countries such as the US and Canada have laws to restrict stock trading in cryptocurrency.
What is cryptocurrency?
The cryptocurrency, as its name suggests, uses encrypted codes to perform a transaction. These codes are recognized by other computers in the user community. Instead of using paper money, an online ledger is updated using normal accounting entries. The buyer’s account is charged and the seller’s account is credited with this currency.
How are cryptocurrency transactions done?
When a user initiates a transaction, their computer sends a public encryption or public key that interacts with the private encryption of the person receiving the currency. If the receiver accepts the transaction, the initiating computer attaches a piece of code to a block of various encrypted codes that all users on the network know. Special users called “Miners” can attach the additional code to the publicly shared block by solving a cryptographic puzzle and earning more cryptocurrency in the process. Once a miner confirms a transaction, the blog record cannot be changed or deleted.
BitCoin, for example, can also be used on mobile devices for shopping. All you have to do is let the receiver scan a QR code from an app on your smartphone or display it face to face using near field communication (NFC). Note that this is very similar to normal online wallets like PayTM or MobiQuick.
Demanding users swear by BitCoin for its decentralized nature, international acceptance, anonymity, permanence of transactions and data security. Unlike paper money, no central bank controls inflationary pressures on cryptocurrency. Transaction logs are stored on a Peer-to-Peer network. This means that all computer chips with their computing power and copies of the databases are stored on all nodes in the network. Banks, on the other hand, store transaction data in central deposits that are in the hands of individuals hired by the company.
How can cryptocurrency be used for money laundering?
The fact that central banks or tax authorities have no control over cryptocurrency transactions means that transactions cannot always be labeled to a particular person. This means that we do not know if the operator has obtained the value reservation legally or not. The transactional store is equally suspicious, as no one can say what consideration was given to the currency received.
What does Indian law say about these virtual currencies?
Virtual currencies or cryptocurrencies are commonly considered pieces of software and are therefore classified as good under the Merchandise Sales Act of 1930.
Being a good, they would be subject to indirect taxes on their sale or purchase, as well as GST on services provided by Miners.
There is still some confusion as to whether cryptocurrencies are valid as currency in India and the RBI, which has authority over clearing and settlement systems and negotiable prepayment instruments, has certainly not authorized the purchase and sale of through this means of exchange.
Therefore, any cryptocurrency received by a resident in India would be governed by the Currency Management Act of 1999 as an import of goods into that country.
India has allowed the trading of BitCoins in special exchanges with integrated safeguards for tax evasion or money laundering activities and the application of Know Your Customer rules. These exchanges include Zebpay, Unocoin and Coinsecure.
Those who invest in BitCoins, for example, can collect the dividends received.
Gains received from the sale of securities involving virtual currencies are also subject to taxation as income and the consequent online filing of IT returns.
If your investments in this currency are large, it is best to get the assistance of a personalized tax service. Online platforms have greatly facilitated the tax compliance process.