By Aaron S John (School of Law, CMR University, Bengaluru)
As the world is constantly changing, new inventions are being made. One of such inventions was cryptocurrency. Cryptocurrency is a style of payment that is used for purchasing goods and services online. Most companies have made their coins. They are called tokens, and these are used to exchange goods or services provided by the company. They are similar to an arcade chip or casino chip. One needs to have real currency to buy any type of crypto, after which you will be able to access it. One of the main reasons to use cryptocurrency is the fact that it works on the blockchain. Cryptocurrencies use a technology called blockchain for its characteristic of being secure and almost impossible to counterfeit. A blockchain is a form of record collector. What makes it unique is the decentralization method that it follows. Along with this, there are also many other reasons for the popularity of cryptocurrencies. Did you know that 6,700 different cryptocurrencies are publicly traded and that there are more than 10,000 different types of cryptocurrencies?
One of the main reasons cryptocurrency is popular worldwide is that there are only meagre fees associated with its use. In contrast, by using various other online payment options, there are often significant fees for your visits. The meagre costs that you only have to pay when using multiple cryptocurrencies are a much better deal for you. It is a good idea for many people to use cryptocurrency to get items online, and many people find it safe too.
Another good reason why people trust cryptocurrencies is that these currencies are not tied to the governments of the world. This implies that cryptocurrencies have the potential to remain stable even during unrest in a particular country, though they are very volatile. Some investors see cryptocurrencies as a decent business risk and believe that their wealth is protected. That is why cryptocurrency has continued to rise over the years. The potential for cryptocurrencies to be more secure than some official government currencies makes them more attractive.
The use of virtual currencies and other forms of crypto-assets has increased a lot in the past five years. However, even after its popularity, most countries don’t have any sort of perfect laws. Countries like the United States, United Kingdom still have to develop a solid system. Other countries like China, India, Japan, and other Asian countries have already implanted rules that make cryptocurrency trade more complex and expensive. The laws established by the IRS (Internal Revenue System) of the United States provide detailed information on the tax rate.
Cryptocurrency Condition In India
The concept of bitcoins, or crypto assets, is relatively new in India. The gains from trading cryptocurrencies (crypto) and the services of cryptocurrency exchanges are likely to be taxed, according to the government, because income from any derived source is included in the Tax Law of 1961, and the delivery of any service, unless specifically exempted, is subject to the Goods and Services Tax (GST). Anurag Singh Thakur, Minister of State for Finance, revealed this information in response to a query in the Rajya Sabha about whether the government collects a tax on cryptocurrency income and whether the GST is collected on cryptocurrency exchanges.
Cryptocurrencies have attracted the attention of tax authorities over the last decade, owing to the high values that have been witnessed trading on stock exchanges in India and around the world, as well as the regulatory structure. Therefore, this legal environment must be used to determine tax.
Because state legislatures impose taxes, Article 246 of the Indian Constitution gives Parliament the power to collect taxes. However, article 265 states that no tax can be imposed or collected unless the law authorizes it. The Constitutional Law of 2016 (Hundred and First Amendment) made many amendments to the implementation of the Goods and Services Tax (“GST”), notably Article 246A, which gave Parliament exclusive power to act on interstate commerce and trade. In addition, Schedule VII outlines the issues that Parliament and state legislatures must address. As a result, all cryptocurrency transaction is scrutinized from two perspectives: income and expenditure. The nature of the transaction and the persons involved will determine whether it is taxed under the Tax Act of 1961, the Central Goods and Services Tax Act of 2017, or other laws. Because it is commonly known that cryptocurrencies are governed by an uncertain regulatory framework.
As of today, no data is maintained by the government of the crypto assets. Because no law states that data on such matters should be noted or documented, the minister claimed. The Central Council of Indirect Taxes and Customs (CBIC) issued unique service accounting codes (SAC) to classify the different services provided under the GST. Thakur stated that there is no particular SAC for cryptocurrencies. Cryptocurrencies have attracted the attention of tax authorities over the last decade, owing to the high values that have been witnessed trading on stock exchanges in India and around the world, as well as the regulatory structure. This legal environment must be used to determine tax. The ministry notified revisions to Annex III of the Commercial Law in a surplus notice issued on Wednesday, effective April 1, 2021.
Positive and Negative Effects of Taxation on Cryptocurrency
In most countries, the government maintains a grey stance regarding taxation laws and cryptocurrencies. This always leads to confusion; there are few countries which has decent laws concerning the taxation of cryptocurrencies, like the US and UK. The IRS (Internal Revenue Service) has already recognized Bitcoin(famous cryptocurrency) as an asset that is similar to property and is taxed as such. This is a positive step as this removes any doubts that the user has. This, in turn, attracts the customers to invest more and conduct more transactions via cryptocurrency. Despite the effort of the government to make matters clear concerning cryptocurrencies and taxes, it has always been unsatisfactory. But with the recent developments, many countries are taking steps to improve it and make things clear. India, one of them mentioned earlier, focuses more on getting things streamlined in all the fields. This shows that the government is working on the first step to encourage and promote cryptocurrency. Anything that has the backing of the government receives a positive reaction. When things become more streamlined, it attracts new users as they have something that they can trust and can see the progress themselves. Making the taxation laws regarding cryptocurrencies will also give it mainstream attention to get the people talking about it. This will also boost the users and make more people aware of it.
That being said, taxation is not always the right step to go as the taxation of Bitcoin is a herculean task. For starters, bitcoin price volatility makes it very hard to predict the price of the cryptocurrency in buy and sell transactions. It is also challenging to identify the appropriate accounting method to use in taxing cryptocurrencies. Furthermore, cryptocurrency is known to be very volatile and is very unpredictable. This acts as a barrier that most people do not cross as they don’t want to lose their hard-earned money. Moreover, the government in few countries doesn’t promote the use of any cryptocurrency as they believe this affects their authority; hence they introduce stringent tax laws for cryptocurrencies. As a result, people do not trust and invest in something that the government does not support. Also, in the majority of the countries, there are no formal laws regarding cryptocurrencies. This vagueness of the government again discourages the interested crowd.
Cryptocurrencies are the next big thing. They are going to be in the market for a long, long time. They already have attracted a loyal base of users who will use it regardless of the tax laws. This shows that cryptocurrencies are here to stay. It does not matter if you are rich or poor; everyone can invest something in Cryptocurrency. I feel that the use of cryptocurrencies will increase, even if the country makes laws or chooses not to. The volatility and unpredictability attract different types of risk-takers, and the introduction of fair tax laws can do wonders. The introduction of taxes should not be considered as a barrier or malice. Instead, it should be regarded as a level up to benefit the user and the government. The best way to understand how volatile the crypto market is to see the latest news regarding the cryptocurrency markets. Many of the famous crypto coins have lost a lot of their value. This also happened just in a matter of few days. This perhaps is the best way to summarise and see the possible risk that one person is getting themselves into. Like always, it’s a high-risk, high-award scenario. The cryptocurrencies also act as a bonus on the country’s economy as it helps the country’s digital infrastructure.