GST on Crypto Assets In The Works; Know How Crypto Assets Are Currently Taxed In India
Let’s understand how taxes on cryptocurrencies and crypto assets are currently implemented.
As per recent reports, the government is currently planning to create a comprehensive indirect tax regime for cryptocurrency assets, which will help the government check the revenue losses due to the volatile nature of cryptocurrencies. The Finance Ministry, under Nirmala Sitharam, is working to define the exact characteristics of cryptocurrencies, their use-cases and how the cryptocurrencies/crypto assets will fit into the existing legal framework. After confirming the exact legal nature of cryptocurrency assets, the ministry will fix a GST rate for cryptocurrencies. As per reports, this GST rate could be between 18% and 28%.
“We are still discussing the applicability of GST in case of crypto assets…right now, it is levied on services… so we need to see if crypto assets are declared as a good or service. We can have a special rate for it. It may not necessarily be 18 per cent or 28 per cent. Maybe somewhere between that. We have had a few discussions on it and will arrive at a decision soon,"A representative from the ministry said.
Another representative also emphasised the fact that a clear understanding of the nature of cryptocurrencies is necessary before the correct GST rate for them could be decided. All these developments come when there is already a heated debate in the country regarding cryptocurrencies. The Reserve Bank of India has previously said that cryptocurrencies and crypto assets are a threat to the country’s financial safety. Other reports mention that the central government is communicating with multilateral agencies and the Bank for International Settlements to develop a common method on how to regulate cryptocurrency assets. Moreover, this GST will only be applicable on the margin or service fee, and not on the entire monetary value of the crypto asset. The government is also looking to examine certain crypto transactions like mining and air-dropping.
Existing Taxation On Cryptocurrencies In India
The government had introduced a tax on VDAs (Virtual Digital Assets), which included cryptocurrencies, NFTS, and crypto tokens, starting from April 1, 2022. Under this newly implemented tax on VDAs under the amended Income Tax Act, 1961, there is now a tax of 30% plus surcharge and cess on the financial gains made on cryptocurrencies and other VDAs.
The Income Tax Act defines cryptocurrencies and crypto assets as -
“ …any information or code or number or token (not being Indian currency or foreign currency), generated through cryptographic means or otherwise, by whatever name called, providing a digital representation of value exchanged with or without consideration, with the promise or representation of having inherent value, or functions as a store of value or a unit of account including its use in any financial transaction or investment, but not limited to investment scheme; and can be transferred, stored or traded electronically…”
This 30% tax is also applicable on gifting or transfer of cryptocurrencies and other VDAs to others. More importantly, any losses that arise as a result of investing in cryptocurrencies and VDAs cannot be offset against profits made from other cryptocurrencies, which essentially means that you will have to pay full taxes on cryptocurrency profits even if you suffer losses from investing in other cryptocurrencies and the losses cannot be offset against the profits made.