Cryptocurrencies and tax challenges

Cryptoconferencing has been around lately because tax authorities believe it can be used to launder money and avoid taxes. The Supreme Court also appointed a Special Investigation Group on Black Money to recommend trading in that currency. Although China reported banning the largest Bitcoin trading operators, countries like the US and Canada have laws restricting stock trading in cryptocurrencies.

What is Cryptocurrency?

Cryptocurrencies, as the name implies, use encrypted codes to execute 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 credits that currency.

How are transactions made in Cryptocurrency?

When a user initiates a transaction, his 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 initial computer attaches a piece of code to a block of various encrypted codes known to all users on the network. Special users called ‘miners’ can add additional code to the publicly shared block, solving the cryptographic puzzle and earning more cryptocurrencies in the process. Once a miner has confirmed the 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 scan the QR code from the 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.

Tough users swear by BitCoin’s decentralized nature, international acceptance, anonymity, transaction durability, and data security. Unlike paper currencies, the Central Bank does not control the inflationary pressures of cryptocurrencies. Transaction books are stored on a Peer-to-Peer network. This means that all computer chips are stored in their computing capacity and copies of all databases are stored on all nodes in the network. Banks, on the other hand, store transaction data in central warehouses, which are in the hands of individuals hired by the company.

How can Cryptocurrency be used to launder money?

The fact that the Central Bank or the tax authorities do not have control over cryptocurrency transactions means that transactions cannot always be labeled to a particular person. This means that we do not know whether the transaction has legally obtained value storage. The transaction store is also suspicious, as no one can know what currency was taken into account.

What does Indian law say about virtual currencies like this?

Virtual currencies or cryptocurrencies are often seen as part of software and are therefore classified as a commodity under the law of the sale of goods in the 1930s.

In addition to good indirect taxes on sales or purchases, GST would also apply to services provided by Miners.

It is still quite confusing to know whether cryptocurrencies are worthwhile as an Indian currency as it has authority over clearing and settlement systems and pre-paid trading instruments as it is not allowed to buy and sell through this exchange medium.

Any cryptocurrency received by a resident of India would be governed by the Exchange Management Act of 1999, in 1999, as an import of goods into this country.

India has allowed BitCoins to trade in special exchanges with integrated protections for tax evasion or money laundering activities and Get to know your customer’s rules. These exchanges include Zebpay, Unocoin and Coinsecure.

Those who invest in BitCoins, for example, will be charged the dividend charge they receive.

Capital gains received from the sale of virtual currency securities should also be taxed as income and as a result IT returns should be filed.

If your investment in this currency is large, you may want to get help from a personalized tax service. Online platforms have come a long way in facilitating the tax compliance process.