The government is seeking to classify cryptocurrencies as a good or service under the GST statute, so that a tax may be applied on the whole value of transactions.
Crypto exchange services are subject to an 18% Goods and Services Tax (GST) and are classified as financial services.
GST officials believe that cryptos, by definition, are similar to lotteries, casinos, betting, gambling, and horse racing, all of which are subject to a 28% GST on the transaction value. Furthermore, in the case of gold, a 3% GST is paid on the transaction amount.
“There is clarity needed in regard to levy of GST on cryptocurrencies and whether it has to be levied on the entire value. We are seeing whether cryptocurrencies can be classified as goods or services and also removing any doubt on whether it can be called an actionable claim,” an official told PTI.
Another official stated that if GST is applied on the entire transaction of cryptocurrency, the rate might range between 0.1% and 1%.
“Discussions are in a nascent stage on the rate of tax, whether it would be 0.1% or 1%. First, a decision on classification will have to be finalised and then the rate will be discussed,” the official added.
The GST law does not clearly indicate the categorisation of cryptocurrency, and in the absence of a law governing such virtual digital currencies, the classification must take into consideration whether the legal framework recognises it as an actionable claim.
An actionable claim is one that a creditor can make for any sort of debt other than one secured by a mortgage on immovable property.
The 2022-23 Budget imposed income tax on crypto assets. From April 1, such transactions will be subject to 30% income tax plus cess and surcharges, in the same way as profits from horse racing or other speculative trades are taxed.
The Budget 2022-23 also imposed a 1% TDS on virtual currency transfers exceeding Rs 10,000 per year, as well as taxes on such gifts in the hands of the receiver. The TDS threshold would be Rs 50,000 per year for certain persons, which would include individuals who are required to have their accounts audited under the I-T Act.
The regulations relating to 1% TDS will go into effect on July 1, 2022, whereas the gains will be taxed from April 1.