The concept of cryptocurrency revolves around a type of digital or virtual currency that uses cryptography for security, making it extremely difficult to counterfeit. Unlike traditional currencies issued by governments (fiat currencies), cryptocurrencies operate on decentralized networks based on blockchain technology—a distributed ledger enforced by a disparate network of computers. A defining feature of cryptocurrencies is that they are generally not issued by any central authority, rendering them theoretically immune to government interference or manipulation.
People can earn money through cryptocurrency in several ways, including:
- CryptoCurrency Trading: Buying cryptocurrencies at a low price and selling them at a higher price.
- Investing: Holding onto cryptocurrencies for a long period, anticipating that their value will increase.
- CryptoCurrency Mining: Using computer power to solve complex mathematical problems that validate transactions on the blockchain. Miners are rewarded with cryptocurrency.
- Staking and Interest: Earning rewards or interest by holding certain cryptocurrencies in a wallet to support the operations of a blockchain network.
- Participating in Initial Coin Offerings (ICOs) or Token Sales: Early investment in new cryptocurrency projects.
As for the law of taxation on income or loss from cryptocurrency in India, the Indian government has started to bring in regulations to manage cryptocurrency transactions and their taxation:
- In the 2022 budget, the Indian government introduced a flat 30% tax on any income from the transfer of virtual digital assets, including cryptocurrencies, without the ability to offset losses against gains.
- Additionally, from July 1, 2022, a 1% Tax Deducted at Source (TDS) on the transfer of virtual digital assets was implemented to ensure transaction tracking.
- There is no deduction allowed on the expenditure incurred except the cost of acquisition.
- Losses from the transfer of virtual digital assets cannot be set off against any other income.
- These measures were put in place to bring cryptocurrencies within the ambit of taxation, reduce market speculation, and track the flow of funds.
The taxation policy aims to bring more transparency and accountability to the trading and investment in cryptocurrencies within India, aligning with global efforts to regulate digital currencies and their impact on the economy.
