Crypto Transactions Will Soon Attract GST; What this means for traders and how it can affect you – News18 | Jewelry Dukan

Indirect taxes on cryptocurrencies could be introduced soon as the government has started working on a comprehensive regime for crypto assets. The formulation of these rules would prevent any loss of revenue to the Treasury due to a lack of clarity about the true nature of these assets, a recent report said. The report also mentioned that cryptocurrencies could attract GST rates between 18 and 28 percent, citing people familiar with the development.

According to Mint’s report, the Treasury wants to “define the characteristics of cryptocurrencies, their uses, and how they fit into the existing regulatory framework.” Once the legal nature is decided, the appropriate GST rate will be determined, the two sources said, asking not to be identified.

“We’re still debating the applicability of GST in the case of crypto assets… right now it’s being levied on services… so we need to see if crypto assets are declared as goods or services. We can have a special price for it. It doesn’t necessarily have to be 18 percent or 28 percent. Maybe somewhere in between. We’ve had some talks about it and will come to a decision soon,” one of the two told the newspaper.

GST on Crypto: What’s Happening to the Current Tax Regime?

Currently, the government imposes a 30 percent income tax on capital gains generated through virtual digital assets and cryptocurrencies and imposes a 1 percent TDS on purchase. When GST is levied on cryptocurrencies, it means that the government is levying an indirect tax on that asset, which is distinct from income tax and TDS, which fall under the category of direct taxes.

“The only current tax system applicable to crypto is direct tax or income tax. The current tax regime of 30 percent direct tax levied on “income from crypto assets” is part of our individual direct income. On the other hand, GST is an indirect tax levied on the sale or purchase of goods and services and payable by an individual solely in their capacity as a consumer. That means even if crypto is brought under the purview of GST, the current direct tax regime will remain in place,” explained Sandeep Bajaj, Managing Partner at PSL Advocates & Solicitors.

“The current tax regime is expected to be modified to allow for the taxation of crypto, particularly with the possible introduction of a tax rate different from currently existing plates. However, further changes depend entirely on how the government treats crypto-related transactions,” noted Nikhil Varma, Managing Partner at Miglani Varma & Co.

Ankit Jain, Partner at Ved Jain & Associates added, “Pending the finalization of the rules surrounding cryptocurrency, the applicability of the GST has been informally held in abeyance.”

What will happen to crypto transactions with the introduction of the GST regime?

Until the government releases new tax rules for cryptocurrencies, there will be confusion about how crypto transactions will be treated in the future. Aditya Chopra, Managing Partner at Victoriam Legalis, says: “Under the GST Act, ‘commodity’ includes, but is not limited to, any tangible 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.

“If it (GST) is calculated on the total or gross value, then Crypto is considered ‘good’ and GST is charged on the price of such Crypto at the specified rate. On the other hand, if they are levied on the service fees, any service fee or transaction fee for exchanging crypto will be subject to the set GST rate,” Bajaj noted.

How will this affect crypto trading in India?

Since the introduction of the Income Tax rule and subsequent TDS regulations, crypto trading in India has taken a hit, with major exchange platforms seeing lower trading volumes.

“While the imposition of a direct tax on crypto has already diluted investor interest, the imposition of the GST will further affect this. On the other hand, the decision to tax crypto will allay investors’ fears of an outright ban on cryptocurrencies in the country,” Bajaj said.

Chopra said trade volumes across the country will fall if such a regime is put in place. “Trading volume between markets would decrease and traders would turn to international exchanges, which are not under the jurisdiction of the Indian government. Also, customers would try to move their cryptocurrencies from exchanges to private wallets. It can also lead to a direct connection between decentralized exchanges and clients for business activities,” he said.

Cryptocurrency trading is also expected to become complicated as exchanges will need to keep proper records of their clients in order to keep them in real-time.

“With the introduction of the GST regime, crypto trading would become quite complicated. The law would dictate the type of merchants who must charge GST and those who don’t. Furthermore, there can even be categories of merchants who are granted a pre-tax credit for the GST paid when purchasing cryptos and those who are not

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