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Blockchain – What is it and how it works?

The Blockchain is the much talked about technology behind Bitcoin but it is not just limited to the Cryptocurrency. In the words of Don & Alex Tapscott, authors Blockchain Revolution, “The blockchain is an incorruptible digital ledger of economic transactions that can be programmed to record not just financial transactions but virtually everything of value.”

How does it work?

The word Blockchain is made of two words ‘Block’ and ‘Chain’ where Block consists of the information which is stored digitally in the blocks and then pulled together in the form of chain. For instance, the block would contain the information such as the transaction done by the customer and product bought. The Block would consist of the information about who has done the transaction. However, the information would not include the name of the person who has done the transaction, rather it would include the Digital signature. Like this every block has various transactions and this information is in the form of ledger.

The interesting part is that the copy of the ledger is distributed among different volunteers who agree to keep the ledger with them and make sure that all the transactions recorded are valid. There is a whole process of validating the transaction known as Mining. These volunteers who cordially agree to give their time in validating the transactions are known as Miners. Also, every transaction on the Block has a unique code which is known as Hash. Information on the Block can easily be viewed by anyone but cannot be tampered with.

Why use Blockchain Technology?

Blockchain ensures security and transparency both at one time. Earlier we talked about Miners who validate the transactions and the process is called Mining. Now, the immediate question that originates is that how can we count on the Miners that they would remain true to the process. So, the idea is that whenever a miner validates a transaction, he earns some fees. It’s not just the monetary benefit that keeps the Miner going rather they also believe that they have a duty towards creating a safer environment of shared data and ensure transparency.

The utility of Blockchain is across the industries and it has something to offer to every industry. For instance, in Healthcare sector it would be possible for the companies and researchers to store the medical records securely. Once the record is generated, it would be duly signed by the Hospital authority and saved on Blockchain which ensures that the information then cannot be changed.

Next, we all know how cumbersome is the whole process of getting a property recorded is. Blockchain would save both the time and cost. Additionally, it would bring the efficiency and reduce the chances of errors. Once, the property deed is verified and stored on the Blockchain, it becomes the owner can be sure that the deed is correct as well as permanent. Overall, the Blockchain technology is just a decade old and a lot of sectors have already found the use-cases and benefits of using the technology.

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Government mulling the idea of imposing GST on Cryptocurrency

Cryptocurrency grabbed maximum limelight over past couple of years with some of the biggest cryptos such as Bitcoin and Ethereum giving stellar returns. However, as the traders and new investors flocked to get the maximum return by trading in the virtual currencies, authorities across the world tightened the noose on the trading and possession of these cryptocurrency and now India is weighing the idea of levying GST.

The situation in India was no different where the traders wanted to make maximum of the rise in cryptocurrency like Bitcoin.  Just like any other government, India has also released multiple statement on the cryptocurrencies suggesting that there is no backing from the RBI or the government to these virtual currencies and that the traders should deal in them on their own risk. Now the country is looking to bring the cryptocurrency under the purview of Goods and Services Tax according to some reports. The tax rate could apparently be 18% on digital currency trades.

As of not, it is just the proposal that is being considered by the Central Board of Indirect Taxes and Custom and once the decision has been arrived. As per the proposal, both purchase and sale of the cryptocurrency would come under the taxes because the virtual currencies are here considered as a supply of goods.

Tax on Cryptocurrency

Tax on Cryptocurrency

Basis of Transaction

  • For the calculation purpose to levy GST, the value of the cryptocurrency transaction would rely on the value in rupees or the equivalent in freely convertible foreign currency.
  • If any transaction has happened outside India, it would come under the preview of (IGST) and would be considered an import or export of goods.
  • If the transaction in the cryptocurrency is made for other reasons such as “supply transfer, storage and accounting” would come under services like crypto mining.
  • Cryptocurrency exchanges need to pay GST on the commission under proposal whereas the foreign exchanges should come under IGST.

Retrospective Taxation

There are possibilities that the government would look to levy the GST on crypto such as Bitcoin trading retrospectively from July 1 2017. With bringing the virtual currency under GST the government is keen to make the taxation process simpler. Under the new proposal, it would be mandatory for the cryptocurrency exchanges to register under GST and pay tax on the commission earned by them. If the exchanges are located outside India, services offered to the Indians would come under the import of a service and will be liable to pay IGST.

Now is the right time for the government to take a clear stand on the Virtual Currencies so that the traders who already possess these currencies along with the new traders who want to take up the virtual currency trading are aware of the exact norms that they need to follow.

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