The government could expand the indirect tax net on cryptocurrencies to cover the full range of activities, including their use for the exchange of goods and services, to a maximum of 28%, as many parliamentarians have demanded to treat them tied with lotteries and gambling, two said people familiar with the development.
Although the Ministry of Finance has already imposed a 30% income tax on income from virtual digital asset transactions from April 1, there are still several aspects relating to the goods and services tax on crypto -currencies, such as its extraction, sale and purchase, and their exchange value. when used to buy or barter goods and services. This issue is being investigated as all of these activities can incur GST, they said, requesting anonymity.
“The tax proposals will be analyzed by the laws committee, which will recommend its views to the GST Board for consideration,” one said.
While the GST Legal Committee comprises 23 bureaucrats representing central and state indirect tax issues, the GST Board is the supreme decision-making body. The Council is chaired by the Minister of Finance of the Union and the Ministers of Finance of the States are members.
One aspect of cryptocurrency is already covered by the indirect tax regime – services provided by crypto exchanges for their sale and purchase attract 18% GST, the second person said. “Several MPs demanded to increase the GST on cryptocurrencies to 28% like gambling and lotteries. Since Parliament is a supreme body, their requests will also be considered by the law commission,” he said.
The GST Secretariat, Central Board of Excise and Customs (CBIC), Union Ministry of Finance, Group of Ministers (GoM) on Rate Rationalization and GoM on Casinos, Gambling money and online games did not respond to e-mail questions about this. question.
During the debate on the Finance and Appropriation Bills on March 25 in Lok Sabha and March 28-29 in Rajya Sabha, several MPs raised the issue of cryptocurrency and its legal status. They proposed higher tax rates on them. They also suggested that cryptocurrencies should be treated like lotteries and gambling, and that GST on cryptocurrencies should be levied at the top 28% instead of 18%.
It should be levied on the full value of the transaction rather than just the part of services provided by crypto exchanges, the parliamentarians suggested, the second person said. Currently, a 28% GST is levied on games of chance and services provided by racing clubs.
The GST Council will have to study both the technical and legal aspects relating to cryptocurrencies before deciding on tax rates, experts have said.
“Cryptocurrency taxation is quite nuanced,” said Mahesh Jaising, partner and head of indirect taxation at consultancy Deloitte India. “While drafting a law to bring the transaction of cryptocurrency under the GST, legislators seem to consider several aspects, such as whether cryptocurrency is considered a service or a good, how to determine the location of parties for each stage of the transaction, what is the global principles of indirect taxation on these transactions, etc.
“While the tax rate is important, the broader question of what should be taxed and on what value is more fundamental,” he said. “Specifically, it would be difficult to determine the method and value on which GST should be paid on subsequent sale transactions, since GST would have been paid on the cost of acquisition. It is hoped that industry will be consulted when the construction project is developed by GST decision makers. »
The GST law does not clearly classify cryptocurrency as either a good or a service to determine the levy, according to Saket Patawari, executive director, indirect taxation at Nexdigm, a consulting firm.
“Currently, the tax is only levied on the portion of services provided by crypto exchanges,” he said. “Taxing the entire transaction at a higher rate of 28% could send markets into a tailspin.”
Clarification is needed on whether the government treats cryptocurrencies as goods or services for tax purposes, he said.
“Once the virtual digital asset is classified, greater clarity would be warranted on drawdown, place of supply, timing of supply and overall treatment of cryptocurrency under GST,” Patawari added.