Project Report on

Topic Name: - “Impact of Taxation on Cryptocurrency Investment in India: A

Virtual Portfolio Study of Bitcoin and Ethereum (July 2025)”

In Partial Fulfilment of

B.Com. Accounting & Finance

Semester V – 2025-26

Project Guide
Name: Dr. Farhat Fatma

Mumtaz Husain Shaikh

Submitted by
Name: Shrutik Manchila
Roll No. 7171
DIV/STD : TYBAF C
INTRODUCTION TO CRYPTOCURRENCY

Cryptocurrency is a type of digital or virtual currency that uses advanced cryptographic

techniques to secure transactions, control the creation of new units, and verify the transfer of
assets. Unlike traditional currencies issued by governments and regulated by central banks,
cryptocurrencies operate on decentralized networks based on blockchain technology, which is a
public digital ledger that records every transaction in a transparent and tamper-proof manner.
Each transaction is verified by participants in the network (called miners or validators), and once
approved, it is permanently added to the blockchain, making it nearly impossible to alter or
forge. Users store and manage their cryptocurrency in digital wallets, which consist of a public
key (similar to an account number used to receive funds) and a private key (like a password that
allows spending and transferring). Cryptocurrencies can be used for various purposes such as
online payments, global money transfers, trading, investments, and even powering applications
like smart contracts on platforms such as Ethereum. Some popular cryptocurrencies include
Bitcoin, Ethereum, Ripple, and Litecoin. While they offer advantages like fast, borderless
transactions and lower fees, they also come with challenges such as high volatility, security
risks, and lack of universal acceptance.

WHAT IS BITCOIN, ETHEREUM?

Bitcoin (BTC)

Bitcoin is the first cryptocurrency, created in 2009 by an unknown person (or group) under the
name Satoshi Nakamoto. It was designed to act as digital money that allows people to send and
receive payments directly without banks or governments. Every Bitcoin transaction is recorded
on a public ledger called the blockchain, making it transparent and secure. What makes Bitcoin
special is its limited supply of 21 million coins, which creates scarcity and makes it valuable,
similar to gold. Because of this, many people treat Bitcoin as a form of digital gold or an
investment rather than just a payment system. However, its transaction speed is relatively slow,
and fees can be higher compared to some newer cryptocurrencies.

Ethereum (ETH)

Ethereum, launched in 2015 by Vitalik Buterin and his team, is much more than just a digital
currency. It is a blockchain platform that allows developers to build decentralized applications
(DApps) and run smart contracts. A smart contract is like a self-executing
agreement: once the conditions are met, it automatically carries out the instructions without
needing a third party. The cryptocurrency used on this network is called Ether (ETH), which is
used to pay for transactions and services on the platform. Ethereum has become the backbone of
Decentralized Finance (DeFi), NFTs (Non-Fungible Tokens), and many Web3 projects, making
it one of the most powerful and widely used blockchain systems in the world.
WHAT IS BLOCKCHAIN AND ITS PROCESS?

Blockchain is a digital ledger system that records information in a secure, transparent, and
tamper-proof way. Instead of storing data in a single place, blockchain keeps it in a series of
blocks that are connected to each other in chronological order, forming a chain. Each block
contains a list of transactions, a unique identification code called a hash, and the hash of the
previous block, which links them together securely. When a new transaction takes place, it is
verified by a network of computers (called nodes) using cryptography. Once verified, the
transaction is stored inside a new block, and that block is added to the existing chain
permanently. This makes it nearly impossible to alter or hack, since changing one block would
require changing every other block in the chain.

Blockchain is the foundation of cryptocurrencies like Bitcoin and Ethereum, but its use goes beyond
digital money—it is also applied in banking, supply chains, healthcare, voting systems, and many
other industries because of its decentralization, security, and transparency.

“Think of blockchain as a digital notebook that everyone can see, but no one can secretly erase or
change.

 Every time someone makes a transaction (like sending money, signing a contract, or
recording data), it gets written on a page of this notebook.

 When the page is full, it is sealed and added to a chain of earlier pages. That’s why it’s called
a block in a chain.

 The notebook is not kept in one place—it is copied across thousands of computers
worldwide. So, if someone tries to cheat and change one page, everyone else’s copy will
expose the fraud.

 This makes blockchain transparent, secure, and nearly impossible to hack.

In short:
Blockchain is a system for recording and sharing information that is decentralized, transparent, and
tamper-proof. It’s like a trustworthy public notebook that no single person controls.”

Example: If you send money to a friend using blockchain, the transaction is written in this notebook.
Everyone can see that it happened, but no one can secretly delete or fake it.
DIAGRAM OF BLOCKCHAIN PROCESS

The Process of Blockchain (Easy simple explanation)

“At its core, a blockchain is nothing more than a fancy, global, shared notebook. Except this
notebook is not in one place, it’s copied thousands of times, all over the world. And everyone who
has a copy is constantly checking with everyone else: ‘Hey, do we agree on what’s written?’

1.Transactions – the Story Begins

Imagine you want to send 1 Bitcoin to your friend. You create a transaction – basically a digital
message saying: ‘From my address → to my friend’s address → 1 BTC.’
You sign it with your private key (like your unique digital signature) so everyone knows it’s really
you.

2. Broadcast – Shouting It Out

You don’t give this message to a bank. Instead, you broadcast it to the network. Think of it like
shouting in a crowd: ‘Hey everyone! I want to send 1 BTC to this address!’

3.Validation – The Crowd Checks

Every computer (node) that hears this checks:

a. Do you actually have 1 BTC in your wallet?

b. Is your signature valid?

If yes, they mark it as “valid.”

4.Block Creation – The Puzzle Race

Now, miners (special nodes) take a bunch of these valid transactions and try to bundle them into a
block.
But here’s the catch: to add this block to the chain, they must solve a really hard mathematical
puzzle (proof-of-work).
This is like a global race where everyone’s rolling dice billions of times per second, hoping to hit
the jackpot.

5.Consensus – Agreement Without Trust

When one miner finally solves the puzzle, they shout:
“I found the answer! Here’s the block!”
Everyone else quickly checks:

a. Is the puzzle solution valid?

b. Do all transactions inside the block follow the rules?

If yes, they accept it and add it to their copy of the blockchain.

6.Chain – The Permanent History

Now that block is chained to the one before it, and the one before that… all the way back to the very
first block (the Genesis Block).
Each block references the one before it, making it practically impossible to change history without
rewriting the entire chain.

7.Security – Why It Works

To cheat, you’d need to redo all the puzzles faster than the rest of the world combined. That’s
astronomically expensive. So, honesty is simply cheaper than cheating.

In Antonopoulos’s words:
“Blockchain is revolutionary because it creates trust without a trusted authority. You don’t need a
bank, a government, or a CEO to decide what’s true. The network decides, mathematically,
transparently, and fairly.”
Day Date BTC Closing Price (USD) ETH Closing Price (USD)
1 Jul-01 107132.8 2488.19
2 Jul-02 105613.4 2405.1
3 Jul-03 108824.4 2574.07
4 Jul-04 109602.2 2590.13
5 Jul-05 108040.9 2509.24
6 Jul-06 108217.5 2517.38
7 Jul-07 109215.2 2571.36
8 Jul-08 108300.7 2543.63
9 Jul-09 108953.2 2615.78
10 Jul-10 111327.5 2772.58
11 Jul-11 115879.7 2948.45
12 Jul-12 117571 2958.85
13 Jul-13 117419 2942.96
14 Jul-14 119117.6 2974.27
15 Jul-15 119833.7 3012.18
16 Jul-16 117678.2 3133.07
17 Jul-17 118748.2 3368.13
18 Jul-18 119445.4 3481.88
19 Jul-19 117988.9 3547.32
20 Jul-20 117901.6 3594.32
21 Jul-21 117256.9 3758.61
22 Jul-22 117482.5 3765.45
23 Jul-23 119955.8 3746.94
24 Jul-24 118629.1 3630.05
25 Jul-25 118354.4 3723.05
26 Jul-26 117540.8 3742.43
27 Jul-27 117959.5 3864.12
28 Jul-28 119418.9 3786.3
29 Jul-29 118003.3 3788.6
30 Jul-30 117853.3 3807.42
31 Jul-31 117833.2 3696.66
Countries in which Bitcoin is legal chart

I. Total Investment Amount: ₹1,00,000 virtual money to invest in cryptocurrency.

II. Investment Decision: Between Bitcoin & Ethereum: After analyzing the June price data I
have decided to invest in both BITCOIN & ETHEREUM to balance risk & return

Cryptocurrency Percentage Amount (in rupees)

Bitcoin (BTC) 60% 60000
Ethereum (ETH) 40% 40000

JUSTIFICATION

1)BTC is steady — it went up about 10% in the month with only 7.6% volatility. It moves less
wildly, and gives you stability.

ETH is fiery — it jumped almost 48% in the same period, but with 16.6% volatility. That’s double
the risk of BTC, but also much more reward if the timing is right.

₹60,000 in BTC — this will give me a solid, relatively stable foundation. Even if crypto dips, BTC
usually holds up better.
₹40,000 in ETH — this keeps me exposed to the higher-growth potential. If ETH rallies, you’ll feel
that excitement in your portfolio.

That way, I am protected on the downside (BTC) but still open to the upside (ETH).
I might have done 50:50 if I had little more reserve funds a little riskier investment. But for now
60:40 feels just right.

What the past month showed

BTC was steady (around ~10% rise) → good for stability.

 ETH had much higher growth (~48% rise) → higher risk, higher reward.

 Balanced portfolios (like 50:50) gave the best outcome.

2. How I think about my ₹1,00,000 going forward

 If I want to prioritize safety with decent growth → 60:40 BTC:ETH.

 If I want higher risk for bigger upside → 50:50 BTC:ETH.

 If I want more stability, less stress → 70:30 BTC:ETH.

But for now I want a safe investment with decent growth hence I will go with 60:40
Conclusion
If you invest your ₹1,00,000 as ₹60,000 in BTC and ₹40,000 in ETH, you’re setting up a balanced
long-term strategy.

 BTC (60%) → Acts as your safety base. It grows slower but steadier, protecting you from
extreme losses.

 ETH (40%) → Adds the growth engine. It’s more volatile, but history shows it has delivered
much bigger gains.

Together, this split gives you the chance to earn strong returns while avoiding the stress of going all-
in on ETH.

Purchase based on the prices (01/07/2025 to 31/07/2025):-

Coin Price per coin Virtual Amount Quantity Brought
BTC ₹10085816.5 ₹60000 0.0059934 BTC
ETH ₹279518.16 ₹40000 0.143103 ETH

To calculate quantity, we take the average price of BTC and ETH over June (since we don’t know
the exact purchase date, average gives a fair estimate)

BTC Average = ∑ BTC Daily Prices / 31 = 3567098.8/ 31 = $115067.7

ETH Average = ∑ ETH Daily Prices / 31 = 98858.52/ 31 = $3188.985

Dollar into rupees

btc = 10085816.5
eth = 279518.16

Calculate quantities:

Quantity of BTC bought = ₹60,000 / ₹10085816.52 = 0.0059934 BTC

Quantity of ETH bought = ₹40,000 / ₹279518.16 = 0.143103 ETH

TAXATION RULE ON CRYPTOCURRENCY (AS PER BUDGET 2022
AND 2023)

In the Union Budget 2022, the Government of India for the first time laid down a clear tax
framework for cryptocurrencies and similar assets, officially calling them Virtual Digital Assets
(VDAs). As per Section 115BBH of the Income Tax Act, any income from the transfer (sale,
exchange, or spending) of VDAs such as Bitcoin, Ethereum, NFTs, or other crypto tokens is
taxed at a flat 30% rate, irrespective of whether the gain is
short-term or long-term. Importantly, taxpayers are not allowed to claim any deductions except
the cost of acquisition (the purchase price). Expenses like transaction fees, mining costs, or
electricity bills for mining cannot be deducted. Furthermore, losses from one VDA cannot be set
off against gains from another VDA or any other income (like salary, property, or business
income), and such losses also cannot be carried forward to future years. In addition, the
government introduced Section 194S, which mandates a 1% Tax Deducted at Source (TDS) on
payments made for transfer of VDAs if the value exceeds
₹50,000 in a financial year (₹10,000 in some cases). This TDS applies whether the
consideration is paid in cash, kind, or partly both, ensuring that every transaction is traceable.

In the Union Budget 2023, the government made no changes to these rules. This meant that the
30% flat tax and 1% TDS continued, despite strong demands from the crypto industry and
traders for relaxation. Many experts pointed out that the strict rules, particularly the 1% TDS,
reduced liquidity and discouraged frequent trading, since every trade triggered a tax deduction.
The government, however, justified the decision by saying the intention was to keep strict
checks on unregulated crypto transactions while ensuring transparency and traceability.
Thus, as of Budget 2022 and 2023, India’s stance on crypto taxation remains very strict—all gains
are taxed at the highest rate, no loss adjustments are allowed, and 1% TDS applies on most transfers.
This makes crypto trading less tax-friendly compared to other assets like equities or mutual funds,
which enjoy lower capital gains tax rates and the ability to set off losses.
 Conclusion:

Cryptocurrency represents a groundbreaking shift in how we view money, transactions, and

trust in the digital age. Through blockchain technology, it offers transparency, security, and
decentralization—qualities that traditional financial systems often lack. Bitcoin stands as a
stable foundation, often compared to digital gold, while Ethereum pushes the boundaries of
innovation with smart contracts and decentralized applications.

From an investment perspective, balancing risk and reward is crucial. A 60:40 split between
Bitcoin and Ethereum provides both stability and growth potential, ensuring protection on the
downside while still capturing upside opportunities. However, investors must also remain aware
of the strict taxation rules in India, which impose a 30% flat tax on gains and 1% TDS on most
transfers, making careful planning essential.

Overall, cryptocurrency is not just a speculative asset—it is a transformative technology with

real-world applications. For investors, students, and professionals alike, understanding its
mechanics, risks, and opportunities is the first step toward harnessing its true potential.