Legal experts have long debated the classification – and tax treatment – of cryptocurrencies. They have yet to agree on whether cryptocurrency is really a currency, a commodity, a service or anything else.
Directorate General of GST Intelligence (DGGI) searched and raided several crypto exchanges and asked them to pay GST on their transaction fee or margin.
Tax experts say the tax department’s stance could mean that at least part of the services provided by exchanges can be classified as services. & Co. Partner Abhishek A Rastogi said, “GST on cryptocurrencies has been a matter of controversy from the taxability and valuation perspective.” “Transaction fees are always paid by the senders. In response to the supply of services by the recipient of the services, and cryptocurrencies are rewarded by the blockchain system to crypto miners upon successful verification of transactions.
The tax department’s stance to levy 18% GST on services and margins provided by exchanges is similar to what commodity exchanges and other intermediaries have to pay in India.
Crypto exchanges are seeking clarity on the issue. “Currently, we do not have any crypto-specific provisions in the GST and Income Tax laws, but are looking at clarity on tax interpretations and complying with 18% GST on exchange revenue from fees and various charges,” said Sumit Gupta , Co-Founder and CEO at CoinDCX.
A WazirX spokesperson said, “There was ambiguity in the interpretation, and we have complied and voluntarily paid GST. We have always been and will continue to comply with all tax related matters.”
DGGI has launched investigations against all top exchanges including WazirX, CoinSwitch, Kuber and CoinDCX.
Even industry organizations believe that the stand of the tax department is justified and will bring more clarity.
Blockchain and Crypto Assets Council (BACC) member Vikas Ahuja said, “The department (tax) would like to check that all brokerages/commissions earned by exchanges have charged 18% GST and we agree to that.”
“The main issues facing some Indian crypto exchanges were along the lines of commission charged by some exchanges on transactions through their native tokens. For example, an Indian exchange may allow users to transact with INR or its native token,” said Edul Patel, CEO and co-founder of Mudrex.
There is currently no clarity on how much cryptocurrency is taxed under Income Tax or GST rules. This is mainly due to the ambiguity about classifying cryptocurrencies like bitcoin and other assets.
Many exchanges have started saying that the whole issue was mainly around compliance and they have accepted the stand of the taxpayer. “Currently, in India, there is a lot of ambiguity regarding the taxation of crypto assets and filing procedures,” said Shivam Thakral, CEO, BuyUcoin.
As to whether they can be equated to currency, equities, gold, technology, services, or lotteries, income tax rates on returns from different assets vary and range from 10% to 35%. The rates of GST can vary from zero to 28% depending on the category.
This is not the first time cryptocurrency has found itself in the crosshairs of tax authorities. In 2017, a tax probe was conducted where top executives and promoters of some cryptocurrency exchanges were asked to explain their business models and how much indirect tax – either service tax or value-added tax – could be levied.
The tax authorities wanted to understand how the revenue from the exchanges should be taxed.
The problem was not only about sales tax and VAT, but also about goods and services tax, how bitcoin might be treated under GST.
It also comes at a time when there is regulatory ambiguity around the cryptocurrency. The government is discussing with stakeholders whether cryptocurrencies should be banned completely or whether they should be allowed in a limited manner where the Reserve Bank of India (RBI) will primarily regulate them, as ET reported on December 11. stated in the report.