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 that recommended that trading in this currency be discouraged. Although it was reported that China banned some of its largest Bitcoin traders, countries such as the US and Canada have laws to restrict cryptocurrency trading.
What is cryptocurrency?
The cryptocurrency, as its name suggests, 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 book is updated using ordinary accounting entries. The buyer’s account is charged and the seller’s account is credited this currency.
How are cryptocurrency transactions made?
When a user initiates a transaction, their computer sends a public encryption or public key that interacts with the private encryption of the person receiving the currency. If the receiver accepts the transaction, the computer initiating the file attaches a piece of code to a block of various encrypted codes that all users on the network know. Special users called “Miners” can attach the additional code to the publicly shared block by solving a cryptographic puzzle and earning more cryptocurrency during the process. Once a miner confirms a transaction, the blog record cannot be changed or deleted.
BitCoin, for example, can also be used on mobile devices to make purchases. All you have to do is let the receiver scan a QR code from a smartphone app or you can do it face-to-face using near field communication (NFC). Note that this is very similar to the usual online wallets like PayTM or MobiQuick.
Difficult users swear by BitCoin for its decentralized nature, international acceptance, anonymity, permanence of transactions, and data security. Unlike paper currency, no central bank controls inflationary pressures on cryptocurrency. Transaction ledgers are stored in a Peer-to-Peer network. This means that all computer chips with their computing power and copies of the databases are stored on all these nodes in the network. Banks, on the other hand, store transaction data in central deposits that are in the hands of individuals hired by the firm.
How can cryptocurrency be used for money laundering?
The very fact that there is no control over cryptocurrency transactions by central banks or tax authorities means that transactions cannot always be labeled to an individual. This means that we do not know whether or not the transaction has legally obtained the accumulated value. Similarly, the operator’s store is suspicious, as no one can know what consideration was taken into account for the currency received.
What does Indian law say about these virtual currencies?
Virtual currencies or cryptocurrencies are commonly seen as pieces of software and are therefore classified as goods under the Merchandise Sale Act of 1930.
Be a good indirect tax on their sale or purchase, as well as the TPS on services provided by miners.
There is still a lot of confusion about whether cryptocurrencies are valid as currency in India and the RBI, which has authority over clearing and settlement systems and prepaid negotiable instruments, has certainly not authorized buying and selling through this medium of exchange. .
Therefore, any cryptocurrency received by a resident in 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 Know Your Customer rules. These exchanges include Zebpay, Unocoin and Coinsecure.
Those who invest in BitCoins, for example, may be charged for dividends received.
Capital gains received due to the sale of securities involving virtual currencies may also be taxed as income and the consequent online filing of IT returns.
If your investments in this currency are large, you better get the assistance of a personalized tax service. Online platforms have greatly facilitated the tax compliance process.