What exactly is Bitcoin?
Bitcoin, often known as a cryptocurrency, virtual currency, or digital cash, is a purely virtual form of money. It’s similar to an online form of cash. In 2009, Bitcoin was the first cryptocurrency to be created. Other cryptocurrencies, such as Ethereum, ripple, litecoin, dash, and others, emerged later.
The Bitcoin apps ensure that you have a bitcoin wallet that you may use to store and sell bitcoins. When you sign in and create your account, wallets are created. Bitcoin token balances are kept using public and private “keys,” which are long strings of numbers and characters linked by the mathematical encryption method that created them.
Bitcoins can be obtained in the following ways:
- Despite the fact that bitcoin is a virtual currency, it is produced at a real cost. Bitcoins must be ‘mined,’ which requires the use of electricity.
- Every individual (referred to as a “miner”) must solve a complex cryptographic challenge and is rewarded with a block of bitcoins.
- People built up powerful machines solely to try to obtain Bitcoins. This is Bitcoin mining in action.
- As a result, mining is directly related to the cost. The competition in tackling this hard challenge may increase the cost of the process.
Purchasing on an exchange versus real money:
- Bitcoins can be purchased through bitcoin exchanges and stored digitally in an online bitcoin wallet.
- Bitcoins can be purchased in exchange for actual money.
- In exchange for goods and services
- You can use bitcoins to buy items and services instead of conventional money, but not many stores accept it yet, and several nations have outright outlawed it.
Bitcoin Taxation and Legality in India?
Bitcoins are not administered or regulated by any one entity, as the RBI does with actual cash in India. Furthermore, no central authority in India authorizes or regulates Bitcoin as a payment mechanism. As of currently, the RBI has not granted cryptocurrencies, including Bitcoins, the status of legal cash in India.
The finance minister introduced Section 115BBH in Budget 2022, which imposes a 30% crypto tax on virtual digital assets. The notion of virtual digital assets includes cryptocurrencies as well as non-fungible tokens (NFT). As a result, bitcoin is now taxed at 30% in India. However, they are not recognised as legal tender in India.
Bitcoin held as an investment is subject to taxation
Capital asset, as defined in Section 2(14) of the Income Tax Act, is “property of any type possessed by the assessee, whether or not associated with his business or profession.” The definition of “Capital Asset” offered is the broadest and includes all types of property save those expressly prohibited by the Act. As a result, any gains resulting from the exchange of Bitcoins for real cash are regarded as Income from Capital Gains if they are held for investment purposes. Bitcoins will generate a long-term capital gain or a short-term capital gain depending on how long they are held. Bitcoin owned as a stock in trade is subject to taxation.
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