Cryptocurrency and Taxation Challenges

Cryptocurrencies have been in the news recently because taxes authorities believe they could be used to launder money and evade taxes. Your Best Court appointed an unique Looking at Team on Black Funds recommended that trading in such currency be disappointed. While China was reported to have banned some its most significant Bitcoin trading operators, countries including the UNITED STATES and Canada have regulations in location to restrict stock trade in cryptocurrency. Crypto News Today

Accurately what is Cryptocurrency?

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

How are Transactions Made on Cryptocurrency? 

When a transaction is initiated by one consumer, her computer sends away a public cipher or public key that interacts with the private cipher of anyone obtaining the currency. In case the receiver allows the transaction, the commencing computer attaches a part of code onto a block of several such encrypted codes that is recognized to every user in the network. Special users called ‘Miners’ can attach the additional code to the openly shared block by fixing a cryptographic puzzle and earn more cryptocurrency at the same time. Once a miner concurs with a transaction, the record in the block are not able to be changed or erased.

BitCoin, for instance, can be used on mobile phones as well to enact purchases. All you need do is let the receiver scan a QR code from an iphone app on your smart phone or bring them face to face through the use of Around Field Communication (NFC). Notice that this is very similar to ordinary online wallets such as PayTM or MobiQuick.

Die-hard users swear by BitCoin due to its decentralized nature, international approval, anonymity, permanence of deals and data security. Contrary to paper currency, no Central Bank controls inflationary stresses on cryptocurrency. Transaction ledgers are stored in a Peer-to-Peer network. That means every computer chips in its computing power and copies of databases are stored on every such node in the network. Banks, on the other hand, store transaction data in central repositories which are in the hands of private individuals employed by the firm.

How do Cryptocurrency be used for Money Laundering?

The very fact that there is no control of cryptocurrency transactions by Banks or tax authorities means that transactions cannot continually be described to a particular person. This means that we don’t know whether or not the transactor has obtained their grocer of value legally or not. The transactee’s store is similarly suspect as no one can tell what consideration was handed for the currency received.

What does Indian Law Declare about such Virtual Foreign currencies?

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

Being a good, roundabout taxes on their sales or purchase as well as GST on the skills provided by Miners would be applicable to them.

There is still quite somewhat of confusion about whether cryptocurrencies are valid as currency in India and the RBI, which has authority over cleaning and payment systems and pre-paid negotiable instruments, has certainly not authorized buying and selling via this medium of exchange.