Are you obsessed with Bitcoin but dont know the legality of this currency? Do you want to ride the wave of cryptocurrency gains but are afraid to invest the hard earned money? If your answer to these 2 questions are yes then you need to quickly read the below writeup which not only describes bitcoin but also tax on bitcoin.
Bitcoin- History and its current standings
One of the most famous cryptocurrency is Bitcoin. Bitcoin was created in 2009. Now you would ask what is cryptocurrency. This will explain below.
Bitcoin was invented by the guy Satoshi Nakamoto who integrated ideas from crytpo community. It is a form of digital currency which is decentralised. Decentralised means the currency is not regulated by any bank or statutory authority. Bitcoin can be used to purchase or sale transaction with peer to peer bitcoin network. You dont require any intermediary or payment gateway for this. Basically it involves the technology called blockchain (explained below) for their operation.
Bitcoin has reached $1 on 9th February 2011. Fast forward a decade and Bitcoin price today in 2021 is somewhere around $54,300 approx (as on 30th April 2021). Within 10 years Bitcoin has leapfrogged to highest levels giving mind blowing returns to its investors.
What is Crypto Currency and Blockchain?
Cryptocurrency is more a digital currency which uses cryptography to secure its transactions. Cryptography means converting the information/data into some codes which are hard to crack. This way crytocurrency is more tough to crack. Cryptocurrencies also known as alternate currency or virtual currencies. Bitcoin was the first cryptocurrency that was created in 2009. Post that other cryptocurrencies too have emerged such as Zcash, Litecoin, Ethereum, Ripple, etc.
Blockchain is a technology which stores data in a different manner from the usual database. It usually save data in a blocks which are chained together. Once the data is feeded in Block, a new block is open and all the input is stored there. The block is used till the time is filled and full. Once the block gets exhausted, it is chained with previous blocks in a chronological order.
Any type of data can be stored in Blockchain technology but it is found that ledger for transactions uses Blockchain technology.
One of the feature of this technology is it is used in decentralised manner so that no person or entity has control over the technology. Also remember that any data input in Blockchain is irreversible. Such entry of data is a permanent record and viewable by users who have access to such data.
How is Bitcoin procured or possessed?
Bitcoin can be procured by the following manner
- Mining – It is a process where people solve computationally difficult puzzles to discover a new block which is added in Block chain. Miners are basically rewarded with bitcoins each time they solve the puzzle which are usually verification and addition of transaction in the block. Various computer chips and hardware along with GPU’s are required for mining
- Purchase Bitcoins from Exchange- Many exchanges online and offline are opened to purchase bitcoins. You need to sign up for cryptocurrency exchange to buy, sell or hold bitcoin. I would suggest to sign up for that exchange which allows for withdrawal of bitcoins in their personal wallet. One need not to divulge their entity as bitcoin systems functions in a decentralised manner. Some of the exchange are Coinbase, Gemini,etc.
Tax On Bitcoin
In India, any income earned by a resident of India is taxable. So any gains arising on Bitcoin trade or holding is taxable in hands of the holder. The tax on income/gains on Bitcoin is charged as capital gains in India.
As it is stated that Bitcoin functions on a decentralized environment, it is a challenge for the Revenue department to trace the gains arising from Cryptocurrencies. Off late the departments has asked the exchanges to share theie profit and losses and also other details of holdings which include type of cryptocurrencies, amount, quantity and details of investor. This would give a headsup to the department about the gains earned by an investor. In case an investor fail to show this gains intheir returns then it might invite the notice of the department.
Hope this article gives you an information about Bitcoin. You can check my other articles
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