Cryptocurrencies have been in the news lately because they believe they can be used by tax authorities to launder money and avoid taxes. Even the Supreme Court recommended discouraging trade in these currencies, which appointed a Special Black Money Research Group. Although China reportedly banned some of the largest traders in Bitcoin trading, countries like the US and Canada have laws to restrict the sale of cryptocurrencies.
What is Cryptocurrency?
Cryptocurrency, as the name implies, uses encrypted codes to make a transaction. These codes are known to other computers in the user community. Instead of using paper money, an online book is updated with regular accounting entries. The buyer’s account is debited and the seller’s account is credited with that currency.
How are transactions made in Cryptocurrencies?
When 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 currency. If the recipient accepts the transaction, the launching computer attaches a piece of code to a block of encrypted code that is known to all network users. Special users called ‘miners’ can add additional code to the publicly shared block by solving a cryptographic puzzle and earning more cryptocurrencies in the process. When a miner confirms a transaction, the block 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 recipient scan the QR code from your phone app or bring it face to face using Near Field Communication (NFC). Note that this is very similar to regular online wallets like PayTM or MobiQuick.
Hardcore users swear by BitCoin for its decentralized nature, international acceptance, anonymity, transaction durability, and data security. Unlike paper currency, the Central Bank does not control inflationary pressures on cryptocurrencies. Transaction books are stored on a Peer-to-Peer network. This means that all the computer chips and copies of the databases in its computing power are stored on every node in the network. Banks, on the other hand, store transaction data in central repositories, which are available to individuals hired by the company.
How can Cryptocurrency be used to launder money?
The lack of control over cryptocurrency transactions by central banks or tax authorities means that transactions cannot always be tagged to a particular person. This means that we do not know whether the transaction was obtained legally by the transaction. The transaction store is also suspicious, as no one can say which currency was taken into account.
What does the Indian Law say about such virtual currencies?
Virtual currencies or cryptocurrencies are usually seen as pieces of software and are therefore classified as goods under the 1930s Sale of Goods Act.
In addition to good sales or purchase taxes, the BGA of the services provided by Miners would also be applicable.
There is still considerable confusion as to whether cryptocurrencies are worthwhile as a currency whether India and the RBI, which has control over clearing and payment systems and pre-paid negotiable instruments, have certainly not allowed them to buy and sell through this exchange.
Thus, all cryptocurrencies received by an Indian resident would be regulated by the Foreign Exchange Management Act of 1999 as an import of goods into this country.
India has allowed BitCoins to trade on special exchanges for tax fraud or money laundering activities and guarantees to enforce Know Your Customer rules. These exchanges include Zebpay, Unocoin and Coinsecure.
Those who invest in BitCoins, for example, should be charged for the dividends they receive.
Capital gains received from the sale of securities with virtual currencies will also be taxed as income and, as a result, will be filed online with IT returns.
If your investment in this currency is large, you may want to get help from a personalized tax service. Network platforms have greatly eased the tax compliance process.