Cryptocurrency and tax challenges

Cryptocurrency has been in the news lately because tax authorities believe that cryptocurrency can be used for money laundering and tax evasion. Even the Supreme Court has appointed a special investigative team on black money issues, recommending against using this currency for transactions. According to reports, China has banned some of the largest bitcoin trading operators, but countries such as the United States and Canada have enacted laws to restrict cryptocurrency stock trading.

What is cryptocurrency?

As the name suggests, cryptocurrencies use encrypted codes for transactions. These codes can be recognized by other computers in the user community. You can use ordinary bookkeeping entries to update the online ledger instead of using paper money. The buyer’s account is debited and the seller’s account is debited in that currency.

How to conduct cryptocurrency transactions?

When a user initiates a transaction, her computer sends out a public password or public key that interacts with the private password of the recipient of the currency. If the recipient accepts the transaction, the computer is activated to attach a piece of code to several such encrypted code blocks known to every user in the network. Special users named “miners” can solve cryptographic puzzles, attach additional codes to public shared blocks, and earn more cryptocurrency in the process. Once the miner confirms the transaction, the record in the block cannot be changed or deleted.

For example, BitCoin can also be used on mobile devices to make purchases. All you need to do is to have the receiver scan the QR code from an app on your smartphone, or use Near Field Communication (NFC) to make it face to face. Please note that this is very similar to ordinary online wallets such as PayTM or MobiQuick.

Stubborn users swear by BitCoin’s decentralization, international recognition, anonymity, transaction permanence and data security. Unlike paper money, no central bank can control the inflationary pressure of cryptocurrencies. The transaction ledger is stored in a peer-to-peer network. This means that every computer will use its computing power and store a copy of the database on every such node in the network. On the other hand, banks store transaction data in central repositories, which are privately owned by companies employed.

How can cryptocurrency be used for money laundering?

The fact that a central bank or tax authority cannot control cryptocurrency transactions means that transactions cannot always be marked as specific individuals. This means that we do not know whether the trader has legally obtained the store of value. Traders’ shops are also under suspicion, because no one can say what they think about the currency received.

What does Indian law say about this virtual currency?

Virtual currency or cryptocurrency is generally regarded as software and therefore classified as a commodity under the Goods Sales Act of 1930.

A good indirect tax on their sales or purchases, and a goods and service tax on the services provided by miners will apply to them.

There is still a lot of confusion as to whether cryptocurrency can be effective as currency in India. The Indian Clearing Bank has the power of clearing and payment systems and pre-paid negotiable instruments, and of course it does not authorize buying and selling through this medium of exchange.

Therefore, any cryptocurrency received by Indian residents will be controlled by the 1999 “Foreign Exchange Control Act” as the country’s commodity imports.

India allows tax evasion or money laundering activities with built-in safeguards and built-in safeguards that implement the “know your customer” specification to conduct bitcoin transactions on special exchanges. These exchanges include Zebpay, Unocoin and Coinsecure.

For example, those who invest in Bitcoin are responsible for charging fees for dividends received.

Capital gains from the sale of securities involving virtual currencies should also be taxed as income, and then an IT return should be submitted online.

If you invest heavily in this currency, it is best to get the help of personalized tax services. The online platform has greatly simplified the tax compliance process.