The central board of indirect taxes and customs (CBIC) is working on an agenda paper on the goods and services tax applicability on crypto or virtual digital assets to end ambiguity regarding its taxation. The Board has been interacting with the industry to decide on the GST rate for crypto assets and identify whether it should be classified as a ‘goods’ or a ‘service’ among other related issues.
The move is aimed to provide clarity to crypto players, who have in the past complained regarding the notices seeking GST on the gross value of the crypto asset, as against the service fees or the commission. The agenda paper will likely be presented to the fitment panel of GST and then to the GST Council to take a final call on GST taxation for crypto assets. The CBIC, under the department of revenue in the ministry of finance is the nodal department for GST.
“The CBIC has been asked to prepare an agenda paper on GST on crypto assets… While currently GST is being levied on the commission charged by exchanges, it may be getting interpreted differently in some cases… We will have to fix whether it is goods or services, and finalize the rates based on that,” said a government official.
While the government is of view that GST will apply only on the margin or service fees and not on the entire value chain or the gross value of the asset, issues like tax treatment of certain transactions like mining or ‘airdropped crypto tokens’ are also being examined by the central government.
According to industry players, while the understanding with the government is that GST will only be levied on the commission or the service fees, some tax officers interpret that GST should be levied on the total value of the crypto asset on gross basis, requiring clarification. Industry players pointed out that a guidance on past transactions would also be necessary to avoid unwarranted disputes.
M S Mani, partner, Deloitte India, said that differential tax treatment on crypto transactions has arisen on account of a lack of clarity on their taxability. “It is essential to have clear guidelines on both classification and valuation aspects of crypto transactions“ said Mani.
“Until a stable taxation regime is awarded to the digital currency sector, tax officers will have a legal right to continue departmental proceedings fueling litigation in the immediate future,” said Rajat Mohan, senior partner, AMRG & Associates. Industry expects policy-level clarity on all the critical aspects of the sector, which includes chargeability of tax on the digital currency assets, valuation of underlying assets, applicable rate of tax and point of taxation, said Mohan.
Emails sent to the spokesperson of finance ministry and to CBIC on Wednesday remained unanswered.
Union government introduced a 30% tax on income from crypto assets with effect from 1 April. It also introduced a 1% TDS on payment of virtual assets exceeding Rs 10,000 in a year and taxation of such gifts in the hands of recipients from 1 July.
Earlier this year several crypto exchanges came under the tax scanner for allegedly evading GST.
“The CBIC should engage with all stakeholders and come up with a new thought process of tax treatment for this industry. Due regard should also be had to international best practices vis-a-vis tax treatment, exemptions, rate, etc for this sector, said Pratik Jain, partner, Price Waterhouse & Co LLP. He added that it needs to be recognized that Crypto industry is an emerging field and trying to force fit existing laws and interpretation to cryptos may only complicate the law rather than yielding solutions,” said Jain.
Abhishek Jain, Partner Indirect Tax, KPMG in India, said that other than issues such as whether crypto transactions fall under ambit of supply of goods or services, applicable GST rate and valuation, there are several other open points that surround the crypto space. “These include implications for crypto exchanges and crypto trades outside exchanges, taxability of mining of cryptos, whether purchase of goods/ services using cryptos qualify as barter transaction, etc,” said Jain. Given this, the industry would be keenly looking forward for the fitment committee report which would intend to clarify such issues, he added.
Certain transactions, say mining activity of crypto currency or exchange between two persons in crypto assets, the government is examining whether it involves a transaction in supply of goods or services or if it is just an actionable claim that is neither goods nor services under GST law. Crypto companies sometimes send free tokens to employees or communities called ‘airdropped tokens’ to encourage its adoption, either as a marketing initiative or to motivate employees.
While finance ministry has ruled out the use case of crypto as a currency, it is deliberating on its use as an asset class. India has been urging the International monetary fund to come up with a global regulation for crypto assets. The IMF is of view that cryptocurrencies could pose risks to financial stability and could also be misused for money laundering, terrorist financing, and other illegal activities.