Crypto and Indian Taxation System

Direct Tax:

Following amendments relating to crypto has been introduced in the Union Budget 2022:

Section 2(47A): – has been introduced which defines ‘virtual digital asset. NFT’s are also included under this.”

Section 115 BBH: –

Income from transfer of asset shall be taxed @30%
No deduction shall be allowed in respect of any expenditure.
Intra head or inter head set off of losses shall not be allowed
carry forward of losses to succeeding assessment years is not allowed.

Section 1945:

TDS @1% shall be deducted at the earlier of time of credit or payment on the transfer of digital asset to any resident

However, no TDS shall be deducted if: –

the consideration is payable by a specified person (individual or HUF not liable to tax audit) and the value of such consideration does not exceed Rs. 50,000/- during Financial year.

the consideration is payable by other than specified person and the value of such consideration does not exceed Rs. 10,000/- during the financial year.

Indirect Tax: –

proposal to levy GST@28% on crypto and it’s mining has been proposed by GST council as on 09.05.2022.

Bitcoin

Bitcoin is a cryptocurrency which is a chain of encrypted data. Bitcoin is the first crypto currency used in the world
The famous white paper by Satoshi Nakamoto (his/her identity is still unknown) paved the path for Bit Coins.
“Bitcoin:- A peer to- peer electronic cash systems’ published on 31^st October, 2008.
first ever bitcoin block “genesis’ was created by Satoshi Nakamoto, where Nakamoto left a message: “The times 03/Jan/2009 Chancellor on brink of second bailout for banks.’
This acts as a proof that bitcoin was created on or after 3rd January 2009.

Can bitcoin be tampered?

Yes, but it has only happened once and that too in August 2010.

After that there has been no proof of it being tempered yet.

The other major crypto currencies in circulation around the world are Ethereum, Tether, Ripper, Litecoin.

Cryptocurrency is majorly used in dark web transactions. There are no regulating authorities which make cryptocurrencies very risky.

Blockchain & Bitcoin – A brief summary

Blockchain: –

Basically, block of information tied in a chain. Every block is linked to each other cryptographically. (Cryptography: – Method of converting plain text into unintelligible text and vice versa.
Every new information is added through new block.
Blocks cannot be tempered by anyone because every block is linked to previous block, so anyone changing a particular block will need to change the previous blocks too.
Digital information is recorded and distributed through these blocks.

Mining: –

It is the process of adding new blocks in the chain while validating the transactions. A puzzle needs to be solved before adding block to the chain.

Bitcoin:

started or first talked about in a post titled-‘Bitcoin: A peer-to-peer electronic cash system’ by Santoshi Nagimoto/Nakamoto on Oct 31,2008.

Bitcoin is a virtual currency based on blockchain. It can be exchanged with each other Without being regulated by any authority

“Santoshi’ is the smallest unit of a bitcoin valued at one hundred millionth of a Bitcoin.

Recent scenario:- Bit coin market has crashed badly

NFT: – Non- Fungible Tokens

Non-fungible means unique and which can’t be replaced with Something else. So, NFTs cannot be exchanged or traded for each other.
NFTs can take the form of a digital art or a video or a music file.
NFTs are digital assets that exist on a block chain. They are basically part of Ethereum Block Chain.
NFTs cannot be altered
Market places where NFTs can be bought and sold include: Nifty Gateway, Open Sea, Foundation.
Twitter Co-founder Jack Dorsey sold his first ever tweet, “Just setting up my twitter”, as an NFT for $2.9 million.
It was purchased by Sina Estavi, CEO of Malaysia based block chain company Bridge oracle.

Risks attached to NFTs are:

Rcently sale of NFTs crashed by 92%. Even Sina Estavi who bought NFT of Jack Dorsey’s tweet couldn’t even get a bid of $14,000, when Estavi tried to sell that NFT.
The price of NFTs depend on its demand. This is the major risk attached to it.

Also, the lack of regulations attached to NFTs make it risky.