Cryptocurrency and tax challenges

Cryptocurrencies have been in the news lately because tax authorities believe they can be used for money laundering and tax avoidance. Even the Supreme Court has appointed a special investigative team on Black Money that recommends discouraging trade in this national currency. While China has reportedly banned some of its biggest bitcoin trading operators, countries like the United States and Canada have laws restricting stock trading in cryptocurrencies.

What is cryptocurrency?

Cryptocurrency, as the name implies, uses encrypted code for any transaction. These codes are recognized by other computers in the user community. Instead of using paper money, an online account is updated by a simple bookkeeping entry. The buyer's account is debited and the national currency is deposited in the seller's account.

How are transactions done in cryptocurrency?

When a user initiates a transaction, his or her computer sends a public cipher or public key that communicates with the person receiving the coin. If the receiver accepts the transaction, the starting computer will attach a piece of code to a block of several encrypted codes that are known to each user on the network. Special users & # 39; Minerals & # 39; By solving a cryptographic puzzle one can attach additional code to a publicly shared block and gain more cryptocurrency in the process. Once a mine worker guarantees a transaction, the block record cannot be changed or deleted.

For example, Bitcoin can be used to execute purchases on mobile devices. All you have to do is let the law receiver scan a QR code from an application on your smartphone or confront them using Nearby Communication (NFC). Note that this is very similar to a simple online wallet like Paytm or Mobiwick.

Die-hard users swear by the decentralized nature of Bitcoin, international recognition, anonymity, the stability of transactions and data protection. Unlike paper currency, no central bank controls inflation pressures on cryptocurrencies. The top of the transaction is stored on the peer-to-peer network. That means every computer chip on his computer and the copy of the database on the computer is stored on every node in the network. Banks, on the other hand, store transaction data in a central repository that is in the hands of a private person hired by the firm.

How can cryptocurrency be used for money laundering?

The fact that there is no control over cryptocurrency transactions by the central bank or the tax authority, doesn't mean that money transactions can always be tagged to a specific person. This means we don't know if the transactor has legally acquired the store. The transaction store is similarly suspect because no one can say what the currency was considered for.

What does Indian law say about virtual currency?

Virtual currencies or cryptocurrencies are generally seen as pieces of software and are therefore classified as good under the Product Sales Act, 1930.

In addition to being a good, indirect tax on their sale or purchase, GST is applicable to the services provided by the miners.

There is still a lot of confusion as to whether cryptocurrency is legal in India as currency, and RBI, which has authority over clearing and payment systems and pre-paid negotiation instruments, is certainly not allowed to buy through this exchange.

Any cryptocurrency received from a resident of India will thus be governed by the Foreign Exchange Management Act, 1 as the import of goods into this country.

India has allowed the trading of bitcoins on special exchanges, including tax evasion or money-laundering activities and built-in safeguards to know your customer's policies. These exchanges include JebPay, UniCoin and QuincyCure.

For example, Bitcoin investors are liable to charge for dividends received.

Capital gains due to the sale of securities associated with virtual currencies are also liable to be filed as income and as a result of an IT return for online filing.

If your investments in this currency are large, you are better off getting personalized customs service support. Online platforms have made the tax compliance process a long way.