Cryptocurrency and Taxation Challenges

Cryptocurrency and Taxation Challenges

Cryptocurrencies have been in the news recently because tax authorities believe they can be used to launder money and evade taxes. already the Supreme Court appointed a Special Investigating Team on Black Money recommended that trading in such money be discouraged. While China was reported to have banned some its largest Bitcoin trading operators, countries such as the USA and Canada have laws in place to restrict stock trade in cryptocurrency.

What is Cryptocurrency?

Cryptocurrency, as the name indicates, uses encrypted codes to effect a transaction. These codes are recognized by other computers in the user community. Instead of using paper money, an online ledger is updated by ordinary bookkeeping entries. The buyer’s account is debited and the seller’s account is credited with such money.

How are Transactions Made on Cryptocurrency?

When a transaction is initiated by one user, her computer sends out a public cipher or public meaningful that interacts with the private cipher of the person receiving the money. If the receiver accepts the transaction, the initiating computer attaches a piece of code onto a block of several such encrypted codes that is known to every user in the network. Special users called ‘Miners’ can attach the additional code to the publicly shared block by solving a cryptographic question and earn more cryptocurrency in the time of action. Once a miner proves a transaction, the record in the block cannot be changed or deleted.

BitCoin, for example, can be used on mobile devices in addition to enact purchases. All you need do is let the receiver examine a QR code from an app on your smartphone or bring them confront to confront by employing Near Field Communication (NFC). observe that this is very similar to ordinary online wallets such as PayTM or MobiQuick.

Die-hard users swear by BitCoin for its decentralized character, international acceptance, anonymity, permanence of transactions and data security. Unlike paper money, no Central Bank controls inflationary pressures on cryptocurrency. Transaction ledgers are stored in a Peer-to-Peer network. That method every computer chips in its computing strength and copies of databases are stored on every such node in the network. edges, however, store transaction data in central repositories which are in the hands of private 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 edges or tax authorities method that transactions cannot always be tagged to a particular individual. This method that we don’t know whether the transactor has obtained the store of value legally or not. The transactee’s store is similarly speculate as nobody can tell what consideration was given for the money received.

What does Indian Law Say about such Virtual Currencies?

Virtual Currencies or cryptocurrencies are commonly seen as pieces of software and hence classify as a good under the Sale of Goods Act, 1930.

Being a good, indirect taxes on their sale or buy in addition as GST on the sets provided by Miners would be applicable to them.

There is nevertheless quite a bit of confusion about whether cryptocurrencies are valid as money in India and the RBI, which has authority over clearing and payment systems and pre-paid negotiable instruments, has certainly not empowered buying and selling via this medium of exchange.

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

India has allowed the trading of BitCoins in Special Exchanges with built-in safeguards for tax evasion or money-laundering activities and enforcement of Know Your Customer norms. These exchanges include Zebpay, Unocoin and Coinsecure.

Those investing in BitCoins, for example, are liable to be charged on dividends received.

Capital gains received due to sale of securities involving Virtual currencies are also liable to be taxed as income and consequent online filing of IT returns.

Should your investments in this money be large, you are better off obtaining the assistance of a personalised tax service. Online platforms have eased the time of action of tax compliance by a long way.

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