Cryptocurrencies have been in the news recently because tax authorities believe they can be used to launder money and evade taxes. The Supreme Court appointed a Special Investigation Committee on Black Money and recommended that trade in such currency be suspended. Although China has reportedly banned some of the largest Bitcoin trading operators, countries such as the United States and Canada have laws restricting exchange trading in cryptocurrencies.
What is cryptocurrency?
Cryptocurrency, as its name suggests, uses encrypted codes to perform transactions. These codes are recognized by other computers in the user community. Instead of using paper money, an online book is updated with regular accounting notes. The buyer’s account is debited and the seller’s account is denominated in this currency.
How are cryptocurrency transactions conducted?
When a transaction is initiated by a user, the computer sends a public password or public key that interacts with the recipient’s private password. If the recipient accepts the transaction, the initiating computer adds a piece to several such encrypted blocks of code known to each user on the network. Special users, called ‘miners’, can solve a cryptographic puzzle, add common code to a shared block, and earn more cryptocurrencies in the process. Once a miner confirms a transaction, the entry in the block cannot be changed or deleted.
For example, BitCoin can also be used to make purchases on mobile devices. All you need to do is allow the recipient to scan a QR code from an app on your smartphone or put them face to face using Near Field Communication (NFC). Keep in mind that this is very similar to regular online wallets like PayTM or MobiQuick.
Hard users swear by BitCoin for its decentralized nature, international acceptance, anonymity, sustainability of operations and information security. Unlike paper currency, no Central Bank controls inflationary pressures on cryptocurrency. Operation books are stored in the Peer-to-Peer network. This means that copies of each computing computer chip and database are stored at each such node in the network. Banks, on the other hand, store operational information in central warehouses held by private individuals employed by the firm.
How to use cryptocurrency for money laundering?
Lack of control over cryptocurrency transactions by central banks or tax authorities means that transactions cannot always be labeled to a specific person. This means that we do not know whether the transaction has legally acquired the value reserve. The contract shop is equally skeptical, as no one can say what was given for the currency purchased.
What does Indian law say about such Virtual Currencies?
Virtual Currencies or cryptocurrencies are generally accepted as software components and are therefore classified as commodities under the 1930 Commodity Sales Act.
In addition to GST, good, indirect taxes on sales or purchases can be applied to miners for the services they provide.
There is still some confusion over whether cryptocurrencies are as reliable as currency in India, and the RBI, which has authority over clearing and payment systems and prepaid negotiation instruments, certainly did not allow trading through this exchange.
Any cryptocurrency purchased by a resident in India will be regulated by the Period Management Act in 1999 as an import of goods into the country.
India has authorized BitCoins with internal security measures to avoid tax evasion or money laundering from trading on Private Stock Exchanges and to comply with Customer Recognition standards. These exchanges include Zebpay, Unocoin and Coinsecure.
For example, investors in BitCoins are required to deduct dividends.
Capital gains from the sale of securities covering virtual currencies are taxed as income and, as a result, IT returns are filed online.
If you have a large investment in this currency, it is better to get help from an individual tax service. Online platforms have long facilitated tax compliance.