CBIC readies GST paper on crypto assets to end ambiguity
The government is of the view that GST will apply only on margin or service fees
NEW DELHI: Clarity on applying goods and services tax (GST) on crypto or virtual digital assets appears to be around the corner, with the Central Board of Indirect Taxes and Customs (CBIC) working on an agenda paper on the topic. The board has been interacting with the industry to decide on the GST rate for crypto assets and identify whether they should be classified as ‘goods’ or a ‘service’, besides related issues.
The move is expected to offer some relief to the crypto industry, which has complained about tax notices seeking GST on the gross value of the crypto asset, as against the service fees or the commission.
The agenda paper will likely be presented to the fitment panel of GST and then to the GST Council. CBIC, under the department of revenue in the ministry of finance, is the nodal department for GST.
“CBIC has been asked to prepare
an agenda paper on GST on crypto assets. At present GST is being levied on the commission charged by exchanges, but it may be getting interpreted differently in some cases. So we will have to fix whether it is goods or services and finalize the rates based on that,” said a government official.
The government is of the view that GST will apply only on margin or service fees and not on the entire value chain or the gross value of the asset, but issues such as tax treatment of transactions including mining
or ‘airdropped crypto tokens’ are also being examined by the Centre.
Some tax officers interpret that GST should be levied on the total value of the crypto asset on a gross basis, requiring clarification, according to industry executives. Guidance on past transactions may also be necessary to avoid disputes.
M.S. Mani, a partner at Deloitte India, said differential tax treatment on crypto transactions has arisen because of a lack of clarity on their taxability. “It is essential to have clear guidelines on both classification and valuation aspects of crypto transactions,“said Mani.
“Until a stable taxation regime is awarded to the digital currency sector, tax officers will have a legal right to continue departmental proceedings, fuelling litigation in the immediate future,” according to Rajat Mohan, senior partner, AMRG & Associates.
The industry expects policylevel clarity on all critical aspects of the sector, which includes chargeability of tax on the digital currency assets, valuation of underlying assets, the applicable rate of tax and point of taxation, said Mohan.
Emails sent to the spokespersons of the finance ministry and CBIC on Wednesday remained unanswered.
The Union government introduced a 30% tax on income from crypto assets with effect from 1 April. It also introduced a 1% TDS on payment of virtual assets exceeding ₹10,000 in a year and taxation of such gifts in the hands of recipients from July 1.
Earlier this year, several crypto exchanges came under the tax scanner for allegedly evading GST. “CBIC should engage with stakeholders and come up with a new thought process of tax treatment. Due regard should also be had to international best practices visa-vis tax treatment, exemptions, rate, for this sector,” said Pratik Jain, partner, Price Waterhouse & Co. LLP. Jain said it needs to be recognized that the crypto industry is an emerging field, and trying to force-fit existing laws and interpretations to cryptos may complicate the law rather than yield solutions.
Abhishek Jain, a partner for indirect tax at KPMG in India, said there are several other open points surrounding the crypto space.
“These include implications for crypto exchanges and crypto trades outside exchanges, taxability of mining of cryptos, whether the purchase of goods/ services using cryptos qualify as a barter transaction,” according to Jain.
Given this, the industry would be keenly looking forward to the fitment panel report, which would clarify such issues, he said.
For certain transactions such as crypto mining or exchange between two people in crypto assets, the government is examining whether it involves a transaction in the supply of goods or services or if it is just an actionable claim that is neither goods nor services under GST law.