Cryptocurrencies have been in the news recently because tax authorities believe they can be used to launder money and evade taxes. The Supreme Court also appointed a special investigative team for black money, recommended to discourage trading in such a currency. While China was reported to have banned some of its largest Bitcoin trading operators, countries such as the US and Canada have laws in place to restrict stock trading in cryptocurrencies.
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What is a cryptocurrency?
Cryptocurrencies, as the name suggests, use encrypted codes to execute a transaction. These codes are recognized by other computers in the user community. Instead of using paper money, an online book is updated from the usual accounting records. The buyer’s account is debited and the seller’s account is credited with this currency.
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How are cryptocurrency transactions performed?
When a transaction is initiated by a user, its computer sends a public key or public key that interacts with the private number of the person receiving the currency. If the recipient accepts the transaction, the initiating computer attaches a piece of code to a block with some such encrypted code that is familiar to every user on the network. Special users called ‘Miners’ can attach 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 record in the block cannot be changed or deleted.
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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 it face to face using Near Field Communication (NFC). Note that this is very similar to regular online wallets like PayTM or MobiQuick.
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Brave users swear by BitCoin for its decentralized nature, international acceptance, anonymity, transaction stability, and data security. Unlike paper currency, no Central Bank controls inflationary pressures on cryptocurrencies. Transaction books are stored on a Peer-to-Peer network. This means that each computer chip in its computing power and copies of databases are stored at each such node on the network. Banks, on the other hand, keep records of transactions in central warehouses which are in the hands of private individuals employed by the firm.
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How can cryptocurrencies 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 may not always be labeled to a particular individual. This means that we do not know whether the tractor has received the value reserve legally or not. The transferee shop is also suspect as no one can say what consideration has been given to the currency received.
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What does Indian law say about such virtual currencies?
Virtual currencies or cryptocurrencies are commonly seen as part of software and are therefore classified as a commodity under the Goods Sale Act, 1930.
Being a good one, indirect taxes on their sale or purchase as well as GST on the services provided by the Miners would apply to them.
There is still a lot of confusion as to whether cryptocurrencies are valid as currency in India and RBI, which has authority over clearing and payment systems and prepaid negotiable instruments, has certainly not authorized buying and selling through this medium of exchange.
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Thus, any cryptocurrency received by a resident in India will be governed by the Foreign Exchange Management Act, 1999 as an import of goods into this country.
India has allowed BitCoins to be traded on Special Exchanges with integrated safeguards for tax evasion or money laundering and enforcement activities Meet your client. These exchanges include Zebpay, Unocoin and Coinsecure.
Those who invest in BitCoins, for example, are required to be charged dividends received.
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Capital gains received due to the sale of securities involving virtual currencies are also required to be taxed as income and as a result of the online submission of IT returns.
If your investments in this currency are large, it is better to get the help of a personalized tax service. Online platforms have greatly facilitated the tax compliance process.
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