Government Plans to Categorize Cryptocurrency Under GST Law 

The Centre is considering categorizing cryptocurrency under the GST law so that tax can be levied on the entire transaction value. At the moment, an 18 percent Goods and Services Tax (GST) is levied only on services provided by cryptocurrency exchanges, which are classified as financial services.

According to GST officials, cryptocurrencies are similar to casinos, gambling, and betting, which have a 28 percent GST on the total value. Furthermore, in the case of gold, a 3% GST is levied on the total transaction value.

Another GST official stated that if GST is levied on all cryptocurrency transactions, the rate would be in the range of 0.1-1 percent. However, the ‘classification’ decision must be finalized first, and then the rate will be discussed.

The GST has not made a clear distinction between cryptocurrency and fiat currency. In the absence of a law governing such virtual digital currencies, the classification must consider whether the law considers it an actionable claim.

An actionable claim is one that a creditor can make for any type of debt other than one secured by a mortgage of immovable property.

The 2022-23 Budget provided clarity on the imposition of income tax on crypto assets. From April 1, such transactions will be subject to a 30 percent I-T plus cess and surcharges, in the same way that gambling, lottery, and other speculative transactions are.

Budget 2022-23 also proposed a 1% TDS on payments towards virtual currencies exceeding $10,000 per year, as well as taxation of such gifts in the hands of the recipient. The TDS threshold limit would be $50,000 per year for specified persons, which would include individuals/HUFs required to have their accounts audited under the I-T Act.

The provisions relating to 1% TDS will go into effect on July 1, 2022, while the gains will be taxed on April 1.

Separately, the government is drafting legislation to govern cryptocurrencies, but no draught has been made public.