In the past 1- 2 decades, our world has changed a lot. We comes from landlines to smartphones. We have almost shifted from wallet to digital wallet. Digital payments is a great shift whether it is vegetable vendors or big showrooms. After payment wallets we do not need to struggle to find exact change and always keep an eye on our wallet. In the same pattern there is one more thing that is slowly catering the path and it set to become a new sensation in the financial world that is Cryptocurrency.
What is Cryptocurrency?
For understand the exact meaning of cryptocurrency we can divide their terms. Crypto means encrypted key and Currency is a source to buy and sale of goods or services.
Crypto currency is known as Digital or Virtual currency which is encrypted by cryptography. It is very volatile and highly portable. Most of the people thinks that Crypto currency is same as Bitcoin, but they are not same. Bitcoin is a type of many other cryptocurrencies that are being traded in the market.
Cryptocurrency works on the concept of blockchain technology. This system is decentralized and outside the control of governments and central authorities.
How does the cryptocurrency work?
Cryptocurrency works on the concept of blockchain technology. Blockchain is a distributed ledger that is applied through a disparate network of computers. In simple words, blockchain is where the transactions are recorded. No any 3rd party involvement.
What are the Types of Cryptocurrency?
There are around more than 10 thousands cryptocurrencies that are being traded publicly as per a market survey. The market cap of Crypto currency is more than 1trillion US dollar according to a website.
The cryptocurrencies types are divided into:-
- Coins- These are crypto currencies which have their own blockchain. The Altcoins are those coins which are other than bitcoins..
- Tokens- Tokens are offered through Initial Coin Offering same as IPO in stock. Cryptotokens are built on existing blockchains.
Some of the other cryptocurrencies popularly traded are-
- Ethereum
- Ripple
- Waves
- Counterparty
- Bitcoin
- Peercoin
- Litecoin
- Dogecoin
- Auroracoin
- Namecoin
Is Cryptocurrency Legal in India?
In India, the legality of cryptocurrency in has always been a matter of confusion. In the year 2018, a circular was issued by Reserve Bank of India where it instructed all the financial institutions to stop providing services to business dealing in cryptocurrencies.
After that a writ petition was filed in Supreme Court of India and it ruled that the circular by RBI is not valid as Reserve Bank of India has no power to stop the trading activity in virtual currencies. As cryptocurrency is not a legal tender in India, therefore RBI cannot regulate it.
From these points we can say that although trading in cryptocurrency is legal in India but cryptocurrency in itself is not a legal. That means we cannot do sale or buy using cryptocurrency in India unlike many western countries.
Is Cryptocurrency Good or Bad?
Cryptocurrenty have both features. The features of cryptocurrency which make it a good option are-
- It gives full freedom for transactions i.e. there is not restriction of amount and quantity, not much merchant’s involvement.
- Mode of trading is very transparent and neutral.
- The cryptocurrency is safe because it is fully encrypted.
- It is a completely decentralized system.
Now the drawbacks of using cryptocurrency are-
- Trading in cryptocurrency is highly in hacking zone, as a hacker can make lot of money just by hacking few wallets.
- As these cryptocurrencies are inclined to exchange rate differences, the exchanges can play with the cost and thereby earning more out of pocket of investor.
- There is no rules & regulations of cryptocurrency in whatsoever manner, this very attribute of cryptocurrency can lead to various frauds and scams.
- There is so much fluctuation on pricing
Now, one most important question if there is so much money involved, than what about taxation of such income.
Do we need to pay tax on income from trading in Cryptocurrency?
There is no law on cryptocurrency then can we say that if there is no law than the income is tax-free, well NO. Income Tax is chargeable even on illegal incomes too. So this also should be taxable.
Now, we will discuss taxability of income from cryptocurrency-
Now, cryptocurrency is attained by mining or for investment.
So as there is no clear provisions in Income Tax Act for cryptocurrency, following views can be taken on the basis of existing provisions of law-
- As Capital Gains- It will be taxed on basis of holding period and rate as applicable for STCG (normal rate of tax on income)/LTCG (20% with indexation) can be applied.
- As business income- It will be taxed at normal rate as applicable to the assessee & expenses related to that business will be allowed.
- If treated as income from other sources- The income can also be treated as income from other sources if it is neither investment nor business. In this case normal rates of taxes as applicable to the assesse will be applicable.
As there are no clear and specific rules, regulations or tax provisions for cryptocurrency, it is better to get connected with your tax consultant to choose the best applicable taxation option for you.
Conclusion
Trading in cryptocurrency can be risky & rewarding too. The choice to trade depends on their choice and risk taking ability and experience. In the world economy Cryptocurrency no doubt it can be surely the “NEXT BIG THING”. Government has been started working on bringing the rules and regulations on trading of cryptocurrency. Its rising popularity is definitely something which makes it something worth to watch out.