Website design By BotEap.comCryptocurrencies 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 and recommended that trading in such currency be discouraged. While China has reportedly banned some of its largest Bitcoin trading operators, countries like the US and Canada have laws in place to restrict cryptocurrency stock trading.

Website design By BotEap.comWhat is cryptocurrency?

Website design By BotEap.comCryptocurrency, as its name suggests, uses encrypted codes to carry out a transaction. These codes are recognized by other computers in the user community. Instead of using paper money, an online ledger is updated by ordinary accounting entries. The buyer’s account is debited and the seller’s account is credited with said currency.

Website design By BotEap.comHow are cryptocurrency transactions made?

Website design By BotEap.comWhen a user initiates a transaction, their computer sends a public cipher or public key that interacts with the private cipher of the person receiving the coin. If the receiver accepts the transaction, the initiating computer encloses a piece of code in a block of various encrypted codes known to all users on the network. Special users called ‘Miners’ can attach the additional code to the publicly shared block by solving a crypto puzzle and earning more cryptocurrencies in the process. Once a miner confirms a transaction, the record in the block cannot be changed or deleted.

Website design By BotEap.comBitCoin, for example, can also be used on mobile devices to make purchases. All you need to do is let the recipient scan a QR code from an app on your smartphone or bring them face to face using Near Field Communication (NFC). Note that this is very similar to ordinary online wallets like PayTM or MobiQuick.

Website design By BotEap.comDie-hard users use BitCoin for its decentralized nature, international acceptance, anonymity, transaction permanence, and data security. Unlike paper money, no Central Bank controls inflationary pressures on cryptocurrencies. The transaction books are stored on a peer-to-peer network. That means that all of the computer chips in your computing power and copies of the databases are stored on each node of the network. Banks, on the other hand, store transaction data in central repositories that are held by individuals hired by the company.

Website design By BotEap.comHow can cryptocurrencies be used for money laundering?

Website design By BotEap.comThe very fact that central banks or tax authorities do not control cryptocurrency transactions means that transactions cannot always be tagged with a particular individual. This means that we do not know whether or not the transactor has obtained the store of value legally. The store of the beneficiary of the transaction is equally suspicious as no one can tell what consideration was given for the coin received.

Website design By BotEap.comWhat does the Indian law say about such virtual currencies?

Website design By BotEap.comVirtual currencies or cryptocurrencies are commonly viewed as pieces of software and are therefore classified as a commodity under the Sale of Goods Act of 1930.

Website design By BotEap.comBeing a good, indirect taxes on its sale or purchase would be applicable, as well as the GST on the services provided by Miners.

Website design By BotEap.comThere is still quite a bit of confusion as to whether cryptocurrencies are valid as currency in India and the RBI, which has authority over clearing and payment systems and prepaid negotiable instruments, has certainly not authorized buying and selling through this medium of exchange.

Website design By BotEap.comTherefore, any cryptocurrency received by a resident of India would fall under the Currency Management Act 1999 as an importation of goods into this country.

Website design By BotEap.comIndia has allowed trading of BitCoins on special exchanges with built-in safeguards for tax evasion or money laundering activities and the enforcement of Know Your Customer rules. These exchanges include Zebpay, Unocoin, and Coinsecure.

Website design By BotEap.comThose who invest in BitCoins, for example, may be charged for dividends received.

Website design By BotEap.comCapital gains received due to the sale of securities involving virtual currencies are also subject to tax as income and, accordingly, to online filing of TI returns.

Website design By BotEap.comIf your investments in this currency are large, it is better to get the assistance of a personalized tax service. Online platforms have greatly facilitated the tax compliance process.