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 China reportedly banned some of its largest Bitcoin traders, countries such as the US and Canada have laws restricting trading in cryptocurrency stocks.
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What is cryptocurrency?
The cryptocurrency, as its name implies, 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 the usual accounting entries. The buyer’s account is charged and the seller’s account is credited with this currency.
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How are cryptocurrency transactions done?
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 receiver accepts the transaction, the initiating computer attaches a snippet of code to 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 cryptographic puzzle and earning more cryptocurrency in the process. Once a miner confirms a transaction, the blog record cannot be changed or deleted.
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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 put them face to face using Near Field Communication (NFC). Note that this is very similar to regular online wallets such as PayTM or MobiQuick.
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Die-hard 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 the details of transactions in central deposits that are in the hands of individuals hired by the company.
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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 tagged to a particular person. This means that we do not know if the operator has obtained the legal value reserve or not. The transactional store is equally suspicious, as no one can say what consideration was given to the currency received.
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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.
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If they are a good one, they will be subject to indirect taxes on their sale or purchase, as well as the GST on the services provided by Miners.
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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 prepaid instruments, has certainly not authorized the purchase and sale of through this means of exchange.
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Therefore, any cryptocurrency received by a resident of 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 guarantees for tax evasion or money laundering activities and the application of the Know Your Customer rules. These exchanges include Zebpay, Unocoin and Coinsecure.
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Those who invest in BitCoins, for example, can collect the dividends received.
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Capital gains received from the sale of securities involving virtual currencies are also subject to taxation as income and the consequent online filing of computer returns.
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If your investment in this currency is large, it is best to get the assistance of a personalized tax service. Online platforms have greatly facilitated the tax compliance process.