Government working on cryptocurrency classification under GST law: Report
New Delhi:
The government is working to classify cryptocurrencies as goods or services under the GST law so that taxes can be applied on the full value of transactions.
Currently, the 18 percent Goods and Services Tax (GST) applies only to services provided by cryptocurrency exchanges and is classified as financial services.
GST officials are of the opinion that cryptocurrencies by nature are similar to lottery, casinos, betting, gambling and horse racing which have 28 percent GST on total value. In addition, GST at 3 percent is applied on the total value of the transaction in the case of gold.
โClarity is needed regarding the levying of GST on cryptocurrencies, and whether it should be levied on full value. We are looking at whether cryptocurrencies can be classified as goods or services and also removing any doubt as to whether it can be called an actionable claim,โ an official said.
Another official said that if GST is applied to the entire cryptocurrency transaction, then the rate could be 0.1 to 1 percent.
"Discussions are at an early stage on the rate of the tax, whether it would be 0.1 percent or 1 percent. First, a classification decision will have to be finalized and the rate will be discussed," the official told PTI. .
The Goods and Services Tax (GST) law does not clearly establish the classification of cryptocurrencies. In the absence of a law regulating such virtual digital currencies, the classification must consider whether the legal framework classifies it as an actionable claim.
An actionable claim is a claim that a creditor can make for any type of debt other than a debt secured by a real estate mortgage.
The 2022-23 Budget has clarified the income tax levy on crypto assets. Beginning April 1, an additional 30 percent tax and surcharge will be levied on such transactions in the same manner as it applies to winnings from horse racing or other speculative transactions.
Budget 2022-23 also proposed a 1 per cent TDS on payments towards virtual currencies beyond Rs 10,000 in a year and taxation of such gifts held by the recipient. The threshold limit for TDS would be Rs 50,000 per year for specified persons including individuals/HUF who are required to audit their accounts under the IT Act.
The provisions related to the 1 percent TDS will take effect from July 1, 2022, while earnings will be taxed from April 1.
The government is working on legislation to regulate cryptocurrencies, but no draft has been published yet.
AMRG & Associates Senior Partner Rajat Mohan said actionable claims, other than lottery, betting and gambling, are not chargeable to the GST.
"Private cryptocurrency cannot be called 'money' or categorized as 'securities' for taxes, so what remains to be verified is whether the legal framework would classify the same as 'actionable claim' or not," Mohan added.
