By Timsy Jaipuria May 9, 2022 6:44:08 PM IST (Updated)
"The proposal is to levy 28 percent GST on services and all activities related to cryptocurrencies soon. The law committee's view will be tabled before the fitment committee, it is then for the fitment committee to suggest a rate, which is likely to be 28 percent, and post this the proposal will be taken to the GST Council for a formal nod," sources said.
The Goods and Service Tax (GST) Council is soon likely to consider levying 28 percent GST on cryptocurrencies. The government's view is to bring cryptocurrencies at par with lottery, casinos, race courses, and betting, sources have told CNBC-TV18.
The matter is up for consideration by the GST Council's nominated law committee, before it puts forward the suggestions to the fitment committee and to the GST Council for a formal nod.
"The proposal is to levy 28 percent GST on services and all activities related to cryptocurrencies soon. The law committee's view will be tabled before the fitment committee, and it is then for the fitment committee to suggest a rate, which is likely to be 28 percent, and post this, the proposal will be taken to the GST Council for a formal nod," sources said.
Even as the date of the next council meeting remains undecided, the backend work to pave way for the proposal has already started, sources added.
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"There are various aspects of cryptocurrencies – the transactions involving cryptos, cryptos being used to make purchases, cryptos being received as payments. All these aspects are under examination and will be discussed by the law committee," sources said.
The sources said all crypto exchanges in India act as intermediaries. "They sell cryptos from foreign exchanges to people in India. So, this is a service, and currently, this is at 18 percent GST slab and classified as intermediary service. Post the discussion at the law committee, this service is likely to be classified under a different head, under the list of services, where it could attract 28 percent GST, if agreed upon by the law committee, fitment committee and the GST Council," the sources added.
Currently, online gaming (without betting) attracts 18 percent GST right now. However, the ones involving betting along with gambling, race clubs, attract 28 percent.
Earlier this month, the panel of state finance ministers was unanimous on hiking the GST rate on casinos, race courses, and online gaming services to 28 percent, West Bengal finance minister Chandrima Bhattacharya had said. However, a call on whether the tax should be levied on gross or net valuation was to be taken after further deliberations.
Apart from the GST, crypto investors also pay a 30 percent income tax plus cess and surcharges on earnings from virtual digital asset transactions after such a proposal was announced in the 2022-23 Budget. This came into effect on April 1.
The Budget also proposed a 1 percent TDS on payments towards virtual currencies beyond Rs 10,000 in a year and taxation of such gifts in the hands of the recipient. The threshold limit for TDS would be Rs 50,000 a year for specified persons, which includes individuals/HUFs who are required to get their accounts audited under the I-T Act. The TDS will come into effect from July 1.
Apart from all the taxes, traders also shell out some money as trading fees to exchanges.
Meanwhile, those who watch the GST space closely feel that any such move should be taken post stakeholder consultations and in detail with providing clarity on the nature of transactions that will be covered.
Pratik Jain, partner, Price Waterhouse LLP, said the government should ideally have deliberations with key stakeholders in the industry and look at international practice before the rate is finalised.
"The other issue to be addressed is the clarity with regard to the classification of cryptos and the method by which the tax collection for this industry would be administered. Without resolution of these issues, specifying a higher tax rate by treating this industry on the same lines of lottery or betting may not be desirable,” Jain said.
Abhishek A Rastogi, partner at Khaitan & Co, told CNBC-TV that it is understood that the rate of 28 percent would be on the margin or the service element of the aggregator and not on the total consideration of the cryptocurrency supply.
“If the intention is to tax the entire supply value of the cryptocurrency, then there must be a credit of the purchase price of the asset," Rastogi said.
“The trading in scrips settles at a price which is the same for both buyer and seller; the service element for the intermediary services becomes taxable for the services rendered to both the buyer and the seller of the script. However, in the case of cryptocurrencies, there is a trading margin, and the revenue of the exchange or the aggregators is the difference between the selling price and the cost price. The regulations must capture this aspect to clarify whether 28 percent is on the trading margin or whether the exchange will be liable to charge only a fixed commission to both the buyer and the seller, and only the commission would be subjected to a 28 percent GST," explained Rastogi.
“To illustrate the above, the seller sells cryptocurrency for Rs.80,000, and the buyer buys the same asset at Rs 1 lakh with a margin of Rs 20,000. The moot point arises is whether 28 percent will be applicable on a margin of Rs 20,000 and whether this amount will be charged to either buyer or seller or both. It must be noted that in the current business models, there is generally no fixed percentage fee which is charged, and hence those provisions must come in the guidelines,” Rastogi added.
Ankur Gupta, Practice Leader (Indirect Tax), SW India said, "Looking at the taxability of cryptocurrency under direct tax introduced this year, it was just a matter of time that the taxability under GST also moves from 18 to 28 percent. Now when it has been made agenda for the next council meeting, it should sail through without any hindrance as well.
However, the imposition of 28 percent GST and 30 percent direct tax, would surely bleed out the majority of the profits which people have earned over a period of time when these cryptos are materialised."