Transaction tax

Crypto Transactions To Attract GST Soon; What this means for traders, how it can affect you

The indirect cryptocurrency tax may be in place soon, as the government has started working on a comprehensive regime for cryptoassets. Framing these rules would prevent any loss of revenue to the public treasury due to the lack of clarity around the true nature of these assets, according to a recent report. The report also mentions that cryptocurrencies can attract GST rates between 18-28%, citing people familiar with the development.

According to Mint’s report, the Ministry of Finance aims to “define the characteristics of cryptocurrencies, their use and how they fit into the existing legal framework”. Once the legal nature is decided, the appropriate GST rate will be set, the two sources said asking for anonymity.

“We are still discussing the applicability of GST in case of crypto assets… at the moment it is levied on services… so we need to see if crypto assets are declared as a good or a service. We may have a special rate for this. It’s not necessarily 18 or 28%. Maybe somewhere in between. We had some discussions about it and we will come to a decision soon,” one of the two people told the newspaper.

GST on Crypto: What Happens to the Current Tax Regime?

Currently, the government levies a 30% income tax on capital gains made from virtual digital assets and cryptocurrencies, while also charging a 1% TDS when purchasing them. If GST on cryptocurrencies is imposed, it will mean that the government will levy an indirect tax on this asset, which is different from income tax and TDS which fall under the category of direct taxes.

“The only current tax regime applicable to crypto is direct tax or income tax. The current tax regime of 30% direct tax levied on “Crypto Asset Income” is part of our direct income GST is an indirect tax which is levied on the sale or purchase of goods and services and is only payable by an individual as a consumer. cryptography falls under the GST, the current direct tax regime will remain,” explained Sandeep Bajaj, Managing Partner at PSL Advocates & Solicitors.

“The current tax regime should be changed to take into account the taxation of crypto, in particular with the possible introduction of a different tax rate from the currently existing slabs. However, further changes are entirely dependent on how the government handles crypto-related transactions,” noted Nikhil Varma, Managing Partner at Miglani Varma & Co.

Ankit Jain, Partner at Ved Jain & Associates, added, “Until the finalization of the cryptocurrency rules, the applicability of GST has been informally held in abeyance.”

What happens to crypto transactions with the introduction of the GST regime?

Until the government releases new tax rules for cryptocurrencies, ambiguity will prevail over how crypto transactions will be handled in the future. According to Aditya Chopra, Managing Partner at Victoriam Legalis, “Under GST law, ‘property’ includes all types of movable property other than money and securities. Additionally, “silver” means legal tender or a foreign currency recognized by RBI, therefore digital assets are not classified as “silver” under the GST. Additionally, digital assets do not fall within the meaning of “security” defined by GST law. »

“If it (GST) is charged on the full or gross value, then Crypto will be considered a ‘good’ and GST will be levied, at the decided rate, on the price of that Crypto. Whereas, if levied on service fees, any service fees or transaction fees for the crypto exchange will be subject to the determined rate of GST,” Bajaj noted.

What impact will this have on crypto trading in India?

Since the introduction of the income tax rule and subsequent TDS provisions, crypto trading in India has taken a hit, with major exchanges seeing lower trading volumes.

“While the imposition of direct crypto tax has already diluted investor interest, the imposition of GST will further impact the same. On the other hand, the move to tax Crypto can only allay investor fears of an outright ban on cryptocurrencies in the country,” Bajaj said.

Chopra said trading volumes across the country would plummet if such a regime were introduced. “Trading volumes in the markets would fall and traders would move to international exchanges, which are outside the jurisdiction of the Indian government. Additionally, customers would seek to move their cryptocurrencies from exchanges to private wallets. It can also result in a direct connection between decentralized exchanges and clients for trading activities,” he said.

Cryptocurrency trading is also expected to become complicated, with exchanges having to keep proper records of their customers to be able to meet them in real time.

“With the introduction of the GST regime, crypto trading would become quite complicated. The law would specify the type of traders who must charge GST and those who do not. Moreover, there may even be categories of traders who would be allowed to receive an input tax credit from the GST paid on the purchase of cryptos and those who will not be allowed

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