Cryptocur currency has been in the news recently because the tax authorities believe they can be used to launder money and avoid taxes. Even the Supreme Court appointed a special investigative team on black money recommended that trade in such currency be discouraged. While China was reported to have banned some of its largest Bitcoin trading operators, countries such as the US and Canada have legislation in place to restrict cryptocurrency stock trading.
What is Cryptocurrency?
Cryptocurrency uses, as its name suggests, encrypted codes to complete a transaction. These codes are recognized by other computers in the user community. Instead of spending paper money, an online ledger with regular posting records is updated. The buyer's account is debited and the seller's account is credited to such currency.
How are transactions made on Cryptocurrency?
When a transaction is initiated by a user, her computer sends a public digit or public key that interacts with the private digit of the person receiving the currency. If the recipient accepts the transaction, the starting computer attaches a piece of code on a block with several of such encrypted codes, which is known to every user in the network. Special users called & # 39; Miners & # 39; can attach the extra code to the publicly shared block by solving a cryptographic puzzle and earn more cryptocurrency along the way. Once a miner has confirmed a transaction, the entry in the block 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 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 similar to very common online wallets such as PayTM or MobiQuick.
Die-hard users swear by BitCoin for its decentralized nature, international acceptance, anonymity, permanent transactions and data security. Unlike paper currency, no central bank controls inflationary pressure on cryptocurrency. Transaction ledgers are stored in a Peer-to-Peer network. This means that each computer chip in its computing power and copies of databases is stored on any such node in the network. Banks, on the other hand, store transaction data in central storage locations, which are in the hands of private employees of the firm.
How can Cryptocurrency be used for money laundering?
The very fact that there is no control over central banks or tax authorities' control over cryptocurrency transactions means that transactions may not always be felt for a particular individual. This means that we do not know whether the transaction has been legally obtained or not. The trader’s shop is similarly suspected as no one can tell what was taken into consideration for the currency received.
What does Indian law say about such virtual currencies?
Virtual currencies or cryptocurrencies are commonly considered software pieces and are therefore classified as a commodity under the Sale of Goods Act, 1930.
Being a good indirect tax on their sales or purchases as well as GST on the services that miners provide would apply to them.
There is still some confusion as to whether cryptocurrencies are valid as the currency of India and RBI, which has authority for clearing and payment systems and prepaid marketable instruments, has certainly not allowed buying and selling through this exchange medium.
Thus, any cryptocurrency received by a resident of India would be subject to the Currency Management Act, 1999, as an import of goods into that country.
India has allowed the trading of BitCoins in special exchanges with built-in safeguards for tax evasion or money laundering and enforcement of Know Your Customer norms. These exchanges include Zebpay, Unocoin and Coinsecure.
For example, those who invest in BitCoins invest for received dividends.
Capital gains received due to the sale of securities involving virtual currencies are also liable to be taxed as income and, as a result, online filing of IT returns.
If your investments in this currency are large, you are better off getting help from a personal tax service. Online platforms have eased the process of fiscal compliance by far.