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Gunjan Prabhakaran, Partner and Leader
Indirect Tax
Pratik Shah, Associate Partner
Indirect Tax

29 June 2022

The regulatory journey of cryptocurrencies (cryptos) in India has seen several ups and downs that parallel the precipitous ups and downs in the price these cryptos are undergoing on the open market. From an outright ban on cryptos to a bill to regulate it, the Union government’s stance on digital assets has changed significantly in recent years.

The 2022 Union budget introduced, among other things, a 30% tax on income from cryptos and other digital assets without offsetting and 1% TDS, discouraging the crypto community. While the crypto community in India is still grappling with the consequences of collecting income tax, there have been media reports that the government is considering a GST @ 28% levy on crypto activities. Crypto activities include selling and buying crypto tokens on various exchanges, holding them in centralized and decentralized wallets, staking on various platforms, and mining (generating) crypto.

Classification of cryptocurrencies under the Indian GST regime

For the purposes of the GST Law, “commodity” includes, but is not limited to, any type of movable property other than “money” and “securities”. Additionally, “money” means legal tender or foreign currency recognized by the RBI, therefore digital assets are not classified as “money” under GST. Also, digital assets do not fall within the meaning of “security” as defined in the GST Act.

The Constitutional Chamber of the Supreme Court in the landmark judgment of,established a three-fold test for considering software as a “commodity”, i.e. (a) its usefulness, (b) its ability to be bought and sold, and (c) its ability to be transmitted, transferred, delivered, stored and to become possessed. Cryptos are intangible, have a use case, and are manufactured, marketed, and stored on physical servers. They can be bought and sold, transferred, transferred, delivered, stored and owned. It can be concluded that cryptos are most likely to be considered “commodities” and can be classified as such under the GST Act.

Possible taxation of various crypto activities in India

Clarity on the taxation of crypto transactions, their assessment and quantification of tax liability under GST is the need of the hour. Ambiguities in the law, coupled with delayed regulatory exemptions, could cause significant difficulties for this industry.

Crypto Global Outlook and Indirect Taxes

Although there are some variations, most tax jurisdictions have issued policies that treat cryptocurrencies as a form of ownership. Some countries have classified it as currency or a form of money because it can be exchanged for traditional currencies and used to purchase goods or services, while others have classified it as a “commodity”.

Different countries around the world have different views on the taxation of cryptocurrencies – In the US, only a few states have addressed cryptocurrency transactions in state sales and tax laws/guidelines, where they are treated as a medium of exchange. In contrast, in Korea and other countries, there are no clear regulations on the VAT treatment of virtual assets. Additionally, countries like Germany, Singapore, Malaysia, and Portugal have exempted cryptos from taxes under certain conditions.

Imposing taxes on cryptocurrency should be seen as a welcome government move, as it implies official government acceptance of the technology. However, cryptos in India have consistently been linked to gambling, tax evasion, etc., and reports of 28% GST would only further despair the industry. A well thought out and efficient tax structure is required to regulate the cryptocurrency market which not only generates revenue for the government but also ensures that the industry in India survives and grows.

(Gunjan Prabhakaran, Partner and Head – Indirect Taxes and Pratik Shah, Director – Indirect Taxes, BDO India)

Source: Economic Times