Crypto currency has brought significant changes to the Indian market, attracting new investors and disrupting traditional financial systems.
Introduction to cryptocurrency in Indian Economy
Its impact is still evolving, but growing interest and acceptance indicate a significant shift in the country’s economic landscape.
Cryptocurrencies in India have had a bumpy ride, with previous bans and the prospect of tight regulations. This virtual asset faced many obstacles.
Despite regulatory uncertainty, the popularity of cryptocurrencies, particularly bitcoin, has surged in India since 2020, with domestic exchanges reporting more than 1.5-2 million investors and a $10 billion market in November. This growing interest in unregulated digital assets marks a shift in the country’s investment patterns, which previously focused on safer assets such as gold. With the Cryptocurrency Bill and Regulation of the Official Digital Currency Act looming, it is worth examining the journey of virtual currencies in India so far.
There are so many questions about cryptocurrencies, let’s take a look at them one by one.
What is Cryptocurrency?
Cryptocurrency, also known as crypto, is a digital or virtual currency that uses cryptography to secure transactions. Unlike traditional currencies, cryptocurrencies operate in a decentralized system without any central regulatory or issuing authority.
All transactions are recorded in a decentralized system. It is a digital payment system that works without the need for banks to verify transactions. It works as a peer-to-peer network that allows users to send and receive payments from anywhere. Cryptocurrency transactions are not physical and exist only as digital records in an online database that specifies specific transactions.
A public ledger records all transactions and digital wallets store cryptocurrencies. Satoshi Nakamoto founded Bitcoin, the first cryptocurrency, in 2009 and is still the most famous. The primary motivation behind the fascination with cryptocurrencies is trading for profit, and speculators sometimes drive prices up to astronomical levels.
How does Crypto Currencies operate?
Cryptocurrencies operate on a decentralized digital ledger known as blockchain that keeps records of all transactions made by currency holders.
Using computing power, mining is the process of solving complex mathematical problems to create new units of cryptocurrency. If you want to use it for transactions, a broker can buy the currency and store it in a crypto wallet.
Unlike physical property, owning a cryptocurrency means owning a key that allows ownership of a unit or record to be transferred between individuals without the need for a trusted third party.
With more financial applications expected to emerge in the future, cryptocurrency and blockchain applications are still relatively new, despite Bitcoin’s founding in 2009. This technology can enable the trading of various financial instruments.
Benefits Of Investing in Crypto Currencies
- The decentralized nature of blockchain technology ensures that there is no central point of control, eliminating the risk of a single point of failure.
- Blockchain technology enables peer-to-peer transactions, making it easier and faster to transfer funds between parties without intermediaries.
- Transactions are verified and processed by the blockchain network, eliminating the need for intermediaries and reducing transaction costs.
- Blockchain-based investments such as cryptocurrencies and tokens can potentially generate returns for investors.
- Blockchain technology enables efficient money transfers, making it faster and cheaper to send money across borders.
Limitation of Investment in Crypto Currencies
- Blockchain associates transactions with pseudonyms instead of real identities, ensuring a degree of privacy.
- Criminals can use a pseudonym on the blockchain for illegal activities such as money laundering and ransomware attacks.
- Some blockchain networks have become centralized because of the concentration of mining power and the influence of a few major players.
- The operating costs like hardware, electricity, and transaction fees can make it expensive and hard to participate in a blockchain network and earn rewards.
- Hackers can exploit the security weaknesses presented by off-chain transactions.
- The value of cryptocurrencies and other blockchain-based assets can be highly volatile, posing a risk to investors.
Is Investing in Crypto Currencies safer?
Due to high market swings and volatility, new investors may face challenges which may also prove to be risky. Some investors believe that the secure and decentralized method of transactions provided by the blockchain technology that underpins cryptocurrencies has long-term potential.
Therefore, investors should thoroughly research and plan for portfolio diversification before investing and should decide to invest an amount that they can afford to lose. Investing has its pros and cons, but it can also be tricky, so one should always do a proper study and analyze the market and be aware of market trends.
The Legal Status of Crypto Currencies in India
No central authority in India regulates or issues cryptocurrencies and there are currently no guidelines for resolving disputes related to their use. Anyone trading cryptocurrencies does so at their own risk. India’s Finance Minister Nirmala Sitharaman has introduced a tax on digital assets, sparking debate over the legality of cryptocurrencies in the country.
The Governor of the Reserve Bank of India (RBI) and other key ministers have not banned cryptocurrencies, but neither have they officially recognized them. In 2022, the Indian government imposed a 30% tax on cryptocurrency profits and a 1% withholding tax, marking the first official government regulation of cryptocurrencies in the country. Legalization of cryptocurrencies requires an official statement from the Indian government.
Tax Implications of Crypto Currencies Trading in India
In India, cryptocurrency taxation is a complex issue that has changed recently. Historically, there was no Income Tax or Goods and Services Tax (GST) on cryptocurrencies in India.
However, the Union Budget 2022 introduced a tax regime for virtual or digital assets that include cryptocurrencies. Under this new regime, cryptocurrency investors must keep well-calculated records of their losses and gains as part of their income.
The authorities will impose a 30% tax on profits made from the transfer of virtual or digital assets such as cryptocurrencies and NFTs, and the reporting of profits will include acquisition costs. In addition, if the buyer’s payment exceeds the limit, a tax of 1% of Tax Deducted at Source (TDS) will be levied.
If someone receives cryptocurrency by gift or transfer, it is subject to tax at the recipient’s end. Any losses arising from investments in virtual or digital assets cannot be recovered against other income.
Key Takeaways
Blockchain secures digital assets known as cryptocurrencies. As this is a new technology, investing in them is speculative and it is essential to understand the risks involved before investing.
This blog does not recommend investing in cryptocurrencies or ICOs and individuals must consult a qualified professional before making any financial decisions as each individual’s situation is unique.
We make no representations or warranties regarding the accuracy or timeliness of the information contained herein.
Disclaimer: The information provided in this Blog is for educational purposes only and should not be construed as financial advice. Trading in the stock market involves a significant level of risk and can result in both profits and losses. Intellect Software & Team does not guarantee any specific outcome or profit from the use of the information provided in this Blog. It is the sole responsibility of the viewer to evaluate their own financial situation and to make their own decisions regarding any investments or trading strategies based on their individual financial goals, risk tolerance, and investment objectives. Intellect Software & Team shall not be liable for any loss or damage, including without limitation any indirect, special, incidental or consequential loss or damage, arising from or in connection with the use of this blog or any information contained herein.
