India to Levy Goods and Services Tax on Cryptocurrency Trading

India Proposes GST Levy on Trading of Virtual Currencies

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  • India proposes levying GST on all cryptocurrency trading.
  • Indian government considers cryptocurrencies as goods and service.

India: According to insiders familiar with the matter, the Indian government is currently proposing an 18% Goods and Services Tax (GST) levy on all cryptocurrency trading. They added that the proposal, which is presently under consideration by the Central Board of Indirect Taxes and Customs, will be presented to the GST Council after being finalized. The insiders have requested for anonymity since they were not authorized to inform the media.

They stated that just like software, digital currencies could be classed as intangible goods. More so, cryptocurrency is used for illegal activities, which is why it must be handled under the laws. Though the Indian government neither legalized cryptocurrencies nor officially banned them, India, however, has in many instances warned against the risks involved in crypto trading. Last April, the Reserve Bank of India (RBI) stops all dealings with bank accounts associated with cryptocurrency trading.

A panel has been set up to suggest a way to regulate and decide on taxing cryptocurrencies. It has been earlier reported that while the Department of Economic Affairs wants cryptocurrency to be regulated, investigative agencies want it to be banned.

According to the proposal:

  • Purchase or sale of cryptocurrencies should be considered as supply of goods, and those facilitating transactions like supply, transfer, storage, accounting, among others, will be treated as services.
  • Value of a cryptocurrency may be determined based on the transaction value in rupees or the equivalent of any freely convertible foreign currency.
  • If buyers and sellers are in India, the transaction would be treated as a supply of software and the buyer’s location will be the place of supply.
  • For transfer and sale, the location of the registered person will be the place of supply. However, for sale to non-registered persons, location of the supplier would be considered as the place of supply.
  • Transactions beyond the Indian territory will be liable for integrated GST and would be considered as import or export of goods. IGST will be levied on cross-border supplies.

Though no decision has been made yet, the Indian government may levy GST on trading of digital currencies retrospectively from 1st July 2017, which was the day the new indirect tax regime was implemented, according to the people the people.

More so, considering digital currency as goods and services may make taxing them easier. According to Abhishek Jain, indirect tax partner at EY India, the Indian government would only have to issue a circular that they were always liable to GST. However, if the government choose to tax them as a currency or a security, this will need a change in the law.

The insiders also stated that crypto mining would also be taken as a supply of service since it produces cryptocurrencies and entails transaction fees and rewards. Miners should pay tax on transaction fees or rewards, but in the case where the reward is above Rs 20 lakh, each miner would have to register under GST. The proposal added that crypto wallet providers would have to also register under GST, and wallets holding keys that help users send and receive cryptocurrencies would also be taxed under the GST. Crypto exchanges should also register under GST and pay tax on the commission they earn, the proposal stated, while services provided by exchanges outside the country to Indians would be counted as an import of a service, and they will have to pay IGST.

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