GST IMPLICATIONS ON CRYPTOCURRENCIES

by Anil T. Consultant

The two subsequent lockdowns in the country due to the corona virus have made people understand the significance of having a passive income source and a lot of people have come up and opted to invest in cryptocurrencies. Investors are finding a great opportunity to make good returns with them. Nevertheless, even after an enormous growth in the number of crypto investors and traders, investors are confused and worried about the taxation on cryptocurrencies in India.

The rules regarding taxation are still unclear as the RBI has not yet given the status of legal tender to this asset class. Although, in March’20, the Supreme Court of India permitted banks to handle crypto transactions from exchanges and traders.

In this article, we will talk about the basics of cryptocurrencies and key aspects where their transactions may involve tax implications and the government’s take on their usage.

WHAT ARE CRYPTOCURRENCIES?

Digital crypto assets or cryptocurrencies, including tokens and stable coins ar a form of decentralized digital currency or money based on blockchain technology which is a distributed ledger enforced by a network of computers and systems. Ranging from digital tokens such as Bitcoin, Ether, to official sovereign-backed digital currencies - they have found increasing acceptance along with enthusiasm among investors.

These cryptocurrencies aim to emulate the uses of traditional and conventional money as a means of payments, a unit of account, and a store of value. Mostly used for investment purposes, they have been used by businesses as payments in lieu of services or goods exchanged. As they are not issued by any centralized body or authority, these are immune from government manipulation and interference for now.

HOW IS CRYPTOCURRENCY ACQUIRED OR GENERATED?

Cryptocurrencies can be generated or acquired in the following ways:

Buying:

Buying it from crypto exchanges using real currency, money and storing it in an online wallet for crypto in digitalized form.

As a legal tender:

It can be used in exchange or as a consideration for the sale of goods or services instead of real currency.

Mining:

Mining cryptocurrency is when a miner uses technology to solve complex and complicated algorithms/equations/codes and record data on the blockchain. In consideration of this work, one may receive payment in new crypto tokens.

LEGALITY OF CRYPTOCURRENCIES IN INDIA

In 2018, the RBI banned the use of crypto currencies as a legal tender in the nation by issuing a notice circular. Although, this decision was reversed and overturned by the Supreme Court of India in March’20, by permitting banks to handle crypto transactions. The Crypto Currency and Regulation of digital Currency Bill, 2021 has been tabled by the Indian government in the parliament and will be taken up for discussion in the monsoon session most probably.

TRADING OF CRYPTO WHETHER SALE UNDER GST

The treatment of crypto as property/goods implies that the supply of any crypto coin or token is a taxable supply and hence comes under the purview of GST. Technically, a supply of crypto as property or goods in exchange for other real/virtual goods should fall within the ambit of barter since bartering is simply an exchange of one good for another one. Other related transactions acting as facilitators will be counted under services and will include transfer, supply, accounting, storage among others.

GST PROPOSAL

The reports suggest that the CRIB (Central Economic Intelligence Bureau) has raised a proposal to the CBIC to bring crypto platforms and exchanges under the purview of GST. The key observations of this proposal available under the public domain are as follows:

The act of mining of cryptocurrency could be treated as a supply of service because it generates cryptocurrencies and charges transaction fee should be classified as an intangible asset and attract GST at the rate of 18%.
Trading of crypto and other related transaction like storage, transfer, accounting among others are also likely to be considered as supply and could be taxed. The transaction value in INR will be used to determine the value and hence the subsequent tax liabilities.
Taxpayers operating as miners will be required to register under the GST act if their annual revenue exceeds Rs. 20 Lacs. GST will be levied on the transaction fee or the reward for the mining. It is also being considered to bring wallet services under the purview of GST.
In cases where the sellers and buyers are registered as Indian operators and residents, the transaction should be treated as software supply. International crypto transactions by companies registered in India will be treated as export or import of goods and such will be liable to IGST. One more major reason to bring cryptocurrencies into the purview of GST is to curb the undermining of legitimate currencies and money laundering.

THE CRUX

In today’s circumstances, Crypto has the power and potential to enhance the backbone of the digital infrastructure of India and also securing all the transactions made on the digital place and network. Among these, levying GST on transactions involving crypto should be considered as a welcoming move rather than a restriction. It is a two-way path for the crypto to be traced and used legally as well as generating income for the Indian government.

With the Government of India mulling over new bills and laws to regulate crypto currencies in the nation, the indirect tax department is looking into whether overseas platforms and exchanges need to pay the GST at 18%. The 19% slab is meant for industrial intermediaries and capital goods, among other times, while the highest tax slab of 28% applies to luxury items like automobiles.

It is the same as the brokerage tax with trading in conventional shares on the stock exchange. In order to bring them under the umbrella of taxation, the Government of India could categorize overseas crypto exchanged with Indian users as OIDAR (Online Information Database Access and Retrieval) services.