India may levy Goods and Services Tax on cryptocurrency trading, according to people with direct knowledge of the matter, even as there’s lack of clarity about their legal status in the country.
The government may levy an 18 percent GST, the people said requesting anonymity as they weren’t authorised to speak to the media. The proposal, being considered by Central Board of Indirect Taxes and Customs, will be tabled before the GST Council after it’s finalised, they said.
Cryptocurrencies could be classified as intangible goods on a par with software, they said, adding that its use in illegal activities would have to be dealt with under other laws.
India hasn’t officially banned or legalised virtual currencies, but the government has, on multiple occasions, pointed to the risks involved. More so, after bitcoin surged 19 times to nearly $19,000 last year before losing most of its gains. The Reserve Bank of India in April barred lenders from dealing with entities trading in cryptocurrencies, giving them three months to unwind business. Crypto exchanges, however, moved the court against the directive.
The decision to tax cryptocurrencies will also hinge on the outcome of the panel set up to suggest a way to regulate them. BloombergQuint had earlier reported that while the Department of Economic Affairs seeks to regulate virtual currencies, investigative agencies want a ban.
The Income Tax Department also issued notices to cryptocurrency traders and is trying to recover dues. If such virtual currencies aren’t proactively taxed, the liability would increase and make recovery difficult, one of the people quoted above said. That’s why CBIC must also move in tandem, he said.
According to the proposal:
Retrospective Taxation Possible
Virtual currencies did a monthly business of about Rs 200 crore, which if taxed at 18 percent for the 10-month period until April would fetch the government nearly Rs 360 crore in GST, according to one of the people quoted above. An industry expert who requested not to be quoted pegged the volumes in December 2017 at 10 times compared with March 2018.
Treating cryptocurrencies as goods and services may make taxation simpler. The government will have to just issue a circular that they were always liable to GST, Abhishek Jain, indirect tax partner at EY India, told BloombergQuint. But to tax them as a currency or a security will require a change in law, he said.
Tax On Mining
Mining will be treated as a supply of service since it generates cryptocurrency and involves rewards and transaction fees, according to people aware of the matter. Tax should be collected from the miner on transaction fees or reward, and if value of the reward exceeds Rs 20 lakh, individual miners will have to register under GST, they said.
Wallets storing keys that help users send and receive virtual currencies should also be taxed under the GST, according to the proposal. Wallet service providers will also have to register under GST.
Cryptocurrency exchanges will have to register under GST and pay tax on the commission they earn, according to the proposal. For exchanges located outside India, service provided by them to Indians would be considered import of a service, and they will have to pay IGST.