India’s Crypto Tax May Curb Excessive Speculation, Bring Institutional Demand
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What to know about the mysterious world of cryptocurrencies
What are cryptocurrencies?
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Is crypto investment legal?
What did the Finance minister announce in the Budget?
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If there is no central authority, how is money controlled?
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NEW DELHI: “It’s all over, but I still don’t get it,” said a colleague’s wife recently as she scrolled for information on crypto , which has been making waves. She isn’t alone, experts say that even some investors don’t understand it.Cryptocurrencies, which ballooned during the pandemic, have lost over $1 trillion in market cap in a couple of months. Bitcoin’s value has nearly halved from its November 2021 peak of $69k. The government was scheduled to present a bill to ban ‘private’ cryptocurrencies in December — but the matter was left pending. However, that did not stop the finance minister from bringing crypto under the tax net in the latest Budget . Here is a low-down on the highly volatile asset:Cryptocurrencies are a digital form of money that represent financial freedom and privacy. Unlike traditional currencies, they are not issued by central banks. They also aren’t controlled by any individual or institution and are instead governed by a code. They enable secure transactions free from government or corporate influence. Due to encryption, it is not possible to issue counterfeit currency or double-spend.Cryptocurrencies were born in the wake of the global financial crisis when people were disillusioned with the banking system . Initial backers were those who understood the technology. However, in the pandemic, high liquidity and low interest rates led to demand for riskier assets. Institutional investments and backing by tech billionaires like Elon Musk gave it a boost.In March 2020, the Supreme Court ruled that the RBI’s 2018 circular prohibiting banks from facilitating crypto trade was illegal. Currently, it is in a ‘grey zone’ as there is no legal backing or ban. However, existing laws (like anti-money laundering, cheating) are applicable.FM Nirmala Sitharaman said crypto transactions will be taxed at 30%. The Budget proposed that no deductions will be allowed except cost of acquisition and losses can’t be set off against other income. The FM also said taxing an asset does not bring legitimacy.You can open an account with a crypto exchange by submitting KYC details online. The investment process is similar to buying stocks on online platforms.Most cryptocurrencies don’t have any intrinsic value. Five years ago, the value of 1 Bitcoin was about $1,000. Now, it is near the $37,000 level — a rise of 3,600%. However, it has been a rollercoaster ride with many crashes over the years. Demand & supply, competition, and regulation are some factors that determine the value of cryptocurrencies.Bitcoin has been designed to have a limit of 21 million and the rate of generation is also pre-decided — the last Bitcoin is set to be mined in the year 2140. Other cryptocurrencies have their own rate of supply. Bitcoin’s finite nature has led to it being called an anti-inflation hedge.Crypto threatens state control over monetary policy. Regulators feel private currency will erode public ‘trust’ in money and lead to financial instability. In India, the RBI has called for a full ban on crypto as partial restrictions won’t be effective. Some countries are developing legal frameworks to treat crypto as assets and not modes of payment.Crypto payments are enabled by a decentralised computer network, where those who verify the transaction using cryptography are rewarded with tokens. However, avenues to spend crypto are limited. El Salvador is the only country where it has legal tender status. Last year, Tesla had announced it would accept payments in certain cryptocurrencies. The first Bitcoin payment was made to buy pizza in 2010. The bill worth $40 was paid using 10,000 Bitcoins, which would be worth $370 million today.Most people are acquiring crypto as an asset and not for payments. They are speculating that it will appreciate as the value of fiat currency deteriorates due to excess supply. Investors see it as a high-risk, high-reward opportunity.Traditionally, a trusted third party has facilitated transactions between two people. To remove third-party risks, cryptocurrencies use a trust-less computer network. The identities of the two parties are not disclosed, but their transaction is recorded and verified publicly.Visit www.TimesDecrypt.com for more updates on crypto
Social Media Urge to Use Monero, Zcash to Avoid India’s Crypto Tax
Privacy coins were in the social media spotlight after India announced that it was imposing a 30% tax on income from cryptocurrencies and other digital assets.
Finance minister Nirmala Sitharaman made the announcement Tuesday while presenting the federal budget.
‘Got a Problem With That, Tax Evader?’
She also said that the central bank will introduce a digital currency in the next financial year using blockchain and other supporting technology.
The news contrasted from the situation in November when the Indian government announced that it was introducing a bill in its Winter Parliament Session to ban private cryptocurrencies.
Several commenters on social media reacted angrily to news of the tax.
“Translation: ‘We can’t control it or ban it, so where going to confiscate a large portion of its value in the hands of the people. Got a problem with that, tax-evader?'” one commenter said on Reddit.
“I’d rather it be banned and the people of India continue to trade crypto tax free,” another responded. “Taxes and crypto don’t mix.”
“This is disgusting,” one said. “Can’t let the people get a better standard of life can they.”
On Twitter, one user was surprised that the tax rate on cryptocurrencies is twice the tax rate on corporations.
And others on social media suggesting using so-called privacy coins like Montero, Zcash and Dash.
“Not that I would ever do it,” one person said on Reddit. “But, THEORETICALLY, could I used Monero to avoid paying taxes on Crypto?”
“Shall we start a riot and just buy sh@t loads of Monero?” another suggested.
“Go on, do it bro,” one commenter responded.
‘Good Luck With That, India’
Privacy coins are popular because they enable the user to control what information they choose to share with companies and organizations.
“Most recently, privacy coins have attracted increasing attention in the public debate as non-privacy cryptocurrencies, such as Bitcoin, do not satisfy some users’ demands for anonymity,” according to a study last year by the Journal of International Financial Markets, Institutions and Money.
However, privacy coins have also become popular for ransomware payments, criminal transactions on the dark web, and money laundering.
The Journal study noting that “non-privacy coins may be the first choice for criminals who might prefer cryptocurrencies exhibiting both a high level of anonymity and liquidity.”
“Another reminder that advocating the use of Monero to EVADE taxes will get your post removed and lead to temp bans,” another commenter said.
Another Reddit chat considered a provision to prohibit private cryptocurrencies in India.
“Private cryptocurrencies are the first and foremost to be targeted by any nation, even the western ones will be trying to crack down on them,” read another comment. “It’s only logical. Invest at your own risk, guys.”
“So they will punish people that are using Monero but when you use Monero your transactions are untraceable lol,” one person said. “Good luck with that India.”
CBDT Chairman decodes India’s crypto roadmap; explains detection & taxation
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Monika is a tech journalist. She is an avid reader fascinated by classic English literature and enjoys painting and cooking. When her head is not buried behind a book, she writes about technology like cryptocurrency, blockchain, AI and more.
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