New Delhi: Ever since Finance Minister Nirmala Sitharaman spoke about digital currencies in her Budget speech earlier this month, the curiosity about the matter has risen by leaps and bounds.

Digital currencies have been around for quite some time now and people have been resorting to the new currency quite often around the world. Many experts have also been bullish about the future of Cryptocurrencies.

Since Bitcoin does not rely on intermediaries, it may lower transaction costs for businesses and emerge as a major means of electronic payment processing.

Bitcoin has a clear potential for growth considering these attributes. Of course, virtual currencies, like traditional currencies, can also be used for money laundering and other criminal activities. However, the chances are akin to the physical world.

Bitcoin is the first name that comes to mind when we discuss Cryptocurrency. However, there are a few more virtual currencies like Ethereum (ETH), Litecoin (LTC), Cardano (ADA), Polkadot (DOT), Stellar (XLM), Dogecoin (DOGE) etc.

Here is how you can invest in Cryptocurrencies:

Acquisition:

Acquisition of currency involves (i) Careful selection of the Cryptocurrency as the market of such virtual currencies is volatile and totally influenced by the market condition because it is generally purchased for the purpose of the investments.

(ii) To find the Cryptocurrency exchange. There are lots of cryptocurrency exchanges, but not all exchanges work in all countries. Different exchanges also offer different types of cryptocurrencies, accept different methods of payment, and charge different fees.

(iii) Open a trading account

(iv) Register the method of payment

(v) Then place the order to acquire the Cryptocurrency as per your choice.

Use the Cryptocurrency:

Now you decide to spend or hold the currency like the share market. Whether you create the portfolio. Use cryptocurrency for purchases from online retailers or buy goods or services from local merchants who accept cryptocurrency.

Future of the Cryptocurrency:

Speculators of virtual currencies believe that digital currency is the future. Because it can be used to meet the day-to-day payment need like other modes i.e., Money, Cards, and another digital wallet if the government permits. Cryptocurrency facilitates much faster than any other method of payment at minimal cost across the globe. It is believed of the user of Cryptocurrency is that if this happens, then a day will also come that Cryptocurrency will replace the traditional payment system and can act as an alternative to national fiat money and traditional commodities like gold.

In the Union Budget 2022-23 speech the Finance Minister mentioned that the income from digital virtual assets or crypto will be taxed. This announcement poured a certain degree of hope among Cryptocurrency investors, as they believe that this move to tax them is explicitly a clear sign of legalisation in the future.

The government will charge a tax of 30 per cent flat (plus surcharge) on the gain on the transaction of the Cryptocurrency. Since it is the nature of speculation thus no deduction is allowed to calculate the profit. If there is a loss in such a transaction, it cannot be set off with any other income and cannot be carry-forwarded. However, current year losses are allowed to set off with the current year profit of such transactions.

To monitor such transactions, there is the provision of Tax to be deducted at source (TDS) @ 1 per cent. The gifting of Cryptocurrency is also taxable in the hands of the recipient. All provisions are applicable from April 1, 2022.

The introduction of Central Bank Digital Currency (CBDC) will give a big boost to the digital economy. Digital currency will also lead to a more efficient and cheaper currency management system. It is, therefore, proposed to introduce Digital Rupee, using blockchain and other technologies, to be issued by the Reserve Bank of India starting 2022-23. This may remove the worries of RBI about private Cryptocurrencies, claiming that they might create financial instability.

Disclaimer: The author of this article is Shankar Mishra, a Chartered Accountant with more than 20 years of experience in the field of Direct & Indirect Taxes and Company Law Matters.