Prices of Bitcoin have been in the news off late for touching new highs every day, and yet, the cryptocurrency, and others like it, remain largely a grey area for most governments and central banks.
By definition, a cryptocurrency is a digital currency that uses cryptography to control the creation of new currency units. Cryptocurrencies are typically not legal tender in many countries.
Bitcoin the world’s most well-known, and accepted, cryptocurrency and digital payment system, was invented by a programmer, or group of programmers, under the name Satoshi Nakamoto.
According to a report by TaxMantra, as of May 2017, around 10 percent of the total trade in Virtual Currencies was from India. It is also estimated that by 2030, around $10 trillion worth of global GDP will be on Blockchain.
In some countries, the virtual currencies have been deemed as legal, partly legal in some and there are some countries like India that are silent on the legal status. However, The RBI Act, 1934, states that only banknotes directed and specified by the central bank qualify as a legal tender, which makes the cryptocurrency illegal tender in India.
In 2014, the European Banking Authority defined a virtual currency as "a digital representation of value that is neither issued by a central bank or a public authority, nor necessarily attached to a fiat currency, but is accepted by natural or legal persons as a means of payment and can be transferred, stored or traded electronically".
By contrast, a digital currency that is issued by a central bank is defined as "central bank digital currency".
The Internal Revenue Service in the US decided in March 2014 to treat Bitcoin and other virtual currencies as property and not currency for taxation, making the Bitcoins not fungible, making it unworkable as a currency.
With the implementation of the goods and service tax in July, the big question in India has been whether transactions in Bitcoins will attract the tax.
The TaxMantra report says that as per section 2 (52) and section 2 (102) of the CGST Act, (52) “goods” means any kind of movable property other than money and securities, but includes actionable claim, growing crops, grass and things attached to or forming part of the land that are agreed to be severed before supply or under a contract of supply.
Meanwhile, “services” means anything other than goods, money and securities, but includes activities relating to the use of money or its conversion by cash or by any other mode, from one form, currency or denomination, to another form, currency or denomination for which a separate consideration is charged.