GST on Cryptocurrency Transactions, not on Digital Asset’s Gross Value

According to two finance ministry officials, the government will levy goods and services tax (GST) on service fees on cryptocurrency transactions, not the digital asset’s gross value. However, the finance ministry has yet to figure out how to approach certain crypto transactions that could result in actionable claims in indirect tax terms.

GST applies to goods and services that are provided for a monetary consideration; however, certain transactions, such as a company providing free crypto tokens to motivate employees or promote its products, may not fall under this category of supply and instead be classified as an actionable claim, which is exempt from GST. The government may seek clarification from the GST Council, according to officials who spoke on the condition of anonymity.

“GST on crypto-assets only applies to exchange margins or service fees, not the total value,” one of the two officials explained. However, the government has yet to establish a framework for GST application in the event of “actionable claims.”

“We’ve been evaluating whether some transactions, such as cryptocurrency mining or crypto asset exchanges between two people, entail a transaction in the supply of goods or services, or if it’s merely an actionable claim that is neither goods nor services under GST law,” the second official added. GST will apply if it is categorized as commodities or services, he said. “One viewpoint is that it is neither commodities nor services because it is an actionable claim. That bit is a little hazy. “We’re taking a close look and will make a decision in due time,” the official continued.

Even after the Union budget suggested a hefty 30 percent tax on revenue from virtual assets on Tuesday, there is little certainty on the entire crypto tax front. It will now be up to the GST Council to provide indirect tax recommendations. According to analysts, the budget’s definition of virtual assets would classify cryptocurrencies and non-fungible tokens as “intangible items” subject to GST.