Cryptocurrencies have been in the news lately because tax authorities believe they may be utilized to launder money and evade taxes. What’s Cryptocurrency? Cryptocurrency, as the name suggests, uses encrypted codes to perform a transaction. These codes are recognized by other computers from the user community. The buyer account is debited and the seller account is credited with such currency.
How are Transactions Made on Cryptocurrency?
When a transaction is initiated by a single user, the computer sends out public code or public key that interacts with private cypher text of individual receiving currency. Special users called Miners can link the extra code to the publicly shared block publicly resolving a cryptographic puzzle and gain more cryptocurrency in the process. Once a miner confirms a transaction, the record from the block can’t be changed or deleted. The transaction is as easy to scan a QR code in the application on your smartphone or bring them face to face by using Near Field Communication.
Note that this is very comparable to regular online wallets like PayTM or MobiQuick. Die-hard users swear by BitCoin because of its decentralized nature, international approval, anonymity, the permanence of transactions and information protection. Unlike paper currency, no Central Bank controls cryptocurrency. Transaction logs are stored in a Peer to Peer network which means every computer chip in its computing power and copies of databases are stored on every such node in the network.
How Can Cryptocurrency be utilized for Money Laundering?
The very fact that there’s No control over cryptocurrency transactions by Central Banks or taxation authorities implies that transactions can’t always be tagged to a certain individual. Which implies that we do not know if the transactor has obtained the store of value legally or not. The transaction is likewise suspect as nobody can tell what consideration was given because of the currency received.
What does Indian Law say about such Virtual Currencies? Virtual Currencies or cryptocurrencies are commonly seen as pieces of software and therefore classify as an asset under the Sale of Goods Act, 1930.
As being goods, GST on the services provided by Miners will be applicable to them. In budget 2018, it has been cleared by Mr Arun Jaitely that cryptocurrencies like bitcoin and others will not be accepted as legal tender in India although these can be defined as crypto assets and shall be held as assets by an individual. Recently at the beginning of April 2018, Reserve bank of India has given a recommendation report with immediate action prohibiting banks and agencies under RBI Act 2017(amended) for accommodating any buying and selling transactions for cryptocurrencies.
Any cryptocurrencies obtained by a resident in India would thus be regulated by the Foreign Exchange Management Act, 1999 as an import of goods in this country. India has allowed the trading of BitCoin in Special Exchanges with integrated safeguards because of tax evasion or money laundering activities and enforcement of Know Your Client (KYC) norms. Almost all the exchanges are on the self-regulatory system rather than any government law regarding regulations. There is an urgent requirement of guidelines for these currencies in favour as due to uncontrollable factor as it will be very difficult to stop channelization of money from India to counties like Dubai, Uk where they welcome blockchain and cryptocurrency projects.
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