Cryptocurrency and tax problems

Cryptocurrencies have recently been in the news because tax authorities believe they can be used to launder money and evade taxes. Even the Supreme Court appointed a special investigative group on black money, recommended to abandon the trade in such currency. While China has reportedly banned some of its largest bitcoin trading operators, countries such as the United States and Canada have laws restricting exchange trading in cryptocurrencies.

What is a cryptocurrency?

Cryptocurrency, as the name implies, uses encrypted codes to make a transaction. These codes are recognized by other computers in the user community. Instead of using paper money, the online ledger is updated with regular accounting records. It is debited from the buyer’s account, and the seller’s account is credited with such currency.

How are transactions with cryptocurrency made?

If a transaction is initiated by a single user, her computer sends a public cipher or public key that interacts with the private cipher of the person receiving the currency. When the recipient accepts the transaction, the initiating computer attaches a piece of code to a block of several such encrypted codes, which is known to every user on the network. Special users called “Miners” can attach additional code to the public block, solving a cryptographic puzzle and earn more cryptocurrency. Once Miner confirms the transaction, the entry in the block cannot be changed or deleted.

For example, bitcoin can be used on mobile devices as well as for shopping. All you need to do is allow the recipient to scan the QR code from the app on your smartphone or put it face to face using near field communication (NFC). Note that this is very similar to regular online wallets such as PayTM or MobiQuick.

Stubborn users swear by BitCoin for its decentralized nature, international recognition, anonymity, transactional consistency and data security. Unlike paper currency, no Central Bank controls inflationary pressures on cryptocurrencies. Transaction books are stored in a peer-to-peer network. This means that each computer chip in its computing power and copies of databases are stored on each such node on the network. On the other hand, banks store transaction data in central repositories held by 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 by individuals. This means that we do not know legally whether or not the transaction received the accumulation of value. The store of the recipient of the transaction is similarly suspected, as no one can say what was given for the received currency.

What does Indian law say about such virtual currencies?

Virtual currencies or cryptocurrencies are commonly treated as software and are therefore classified as a commodity under the Commodity Sale Act of 1930.

Being good, they will be subject to indirect taxes on their sale or purchase, as well as a tax on goods and goods on Miner’s services.

There is still much confusion as to whether cryptocurrencies operate as a currency in India, and the RBI, which has authority over clearing and payment systems and prepaid current instruments, has certainly not allowed buying and selling through this medium of exchange.

Therefore, any cryptocurrencies received by a resident of India will be governed by the Foreign Exchange Management Act 1999 as imports of goods into that country.

India has allowed bitcoins to be traded on special exchanges with built-in guarantees for tax evasion or money laundering, as well as compliance with Know Your Customer. These exchanges include Zebpay, Unocoin and Coinsecure.

For example, those who invest in bitcoin must collect dividends.

Capital gains resulting from the sale of securities using virtual currencies are also taxable as income and the corresponding online filing of IT reports.

If your investment in this currency is large, you better seek the help of a personal tax office. Online platforms have greatly facilitated the process of complying with tax requirements.