In the 2022 Budget, the Finance Minister introduced a significant change in the taxation of virtual digital assets. 30% income tax was imposed on gains realised from the transfer of these assets, with a requirement for a 1% tax deduction on every trade involving virtual digital assets. Additionally, it was clarified that losses arising from these assets cannot be offset against any other source of income.
These developments stirred ripples in the cryptocurrency space, leaving traders and investors pondering whether Goods and Services Tax (GST) would also apply, as the announcements primarily focused on direct taxation.
This article delves into the existing GST laws to determine whether they encompass cryptocurrencies or digital assets.
Defining Cryptocurrency or Digital Assets under GST
The GST Act currently lacks a specific definition for cryptocurrency or digital assets. We can refer to the definition introduced in the finance budget to address this gap.
Virtual digital assets are described as any form of information or code representing value that can be exchanged and used in financial transactions. These assets can be electronically stored or transferred. It’s important to note that virtual digital assets also encompass non-fungible tokens and other digital assets specified by the central government, excluding Indian or foreign currencies.
Determining the Scope of Supply under GST and Applicable Exemptions
Before categorising virtual digital assets for GST, they must be classified as goods or services. In the GST framework, goods comprise movable properties, actionable claims, crops, and items attached to the land, which need to be severed before their sale. However, goods do not include money and securities.
On the other hand, services are defined as anything other than goods, money, and securities. This includes activities involving money or currency conversion, where a separate consideration is charged, such as commission or interest.
It’s essential to clarify the definitions of money and securities under GST. Money includes Indian legal tender, foreign currency, checks, letters of exchange, pay orders, electronic remittances, or any other instrument recognised by the RBI for settling obligations. On the other hand, securities encompass shares, bonds, debentures, or similar instruments associated with a company, derivatives, units from investment schemes, or government securities.
Given these definitions, virtual digital assets do not qualify as money or securities; they are instead categorised as “goods” for GST applicability.
Regarding exemptions, the sale of crypto or digital assets is not covered in Schedule III of the GST Act or any notifications issued by the tax department. Consequently, the sale of these assets is subject to GST.
Who is Responsible for Paying GST on the Supply of Cryptocurrency
Cryptocurrency or digital assets can be acquired through crypto exchanges or mining. According to GST Law, the supplier of goods is responsible for levying and collecting GST. Therefore, the seller of digital assets must pay GST and collect it from the buyer, regardless of whether the sale is conducted through exchanges or other means.
What is the GST Rate and HSN Code?
Presently, there is no specific HSN code or rate for digital assets. However, HSN code 960899, titled “other miscellaneous articles,” is often referenced, with a GST rate of 18%—the highest within this category.
It’s worth noting that only individuals whose sales or turnover exceeds the threshold of Rs 40 lakhs during the financial year or those who have voluntarily registered under GST are liable to pay GST.
Input Tax Credit Claims for GST on Cryptocurrency or Digital Assets
According to GST Law, input tax credit can only be claimed if goods or services are used for business purposes. Therefore, GST paid on the purchase of cryptocurrency and any other goods or services used in cryptocurrency transactions (such as broker commissions, consultancy services, software, and costs associated with generating digital assets) can be used to offset taxes.
Advance Rulings
Currently, prominent crypto exchanges are seeking clarification regarding the applicability of GST on cryptocurrency or digital assets. Given that more than 10 crore people have invested in cryptocurrencies worth over Rs. 400 crores, any amendments to the GST law may have implications not only for investors but also for cryptocurrency exchanges. These inquiries are a vital step in achieving clarity on the taxation of digital assets in India.
Also Read: Late Fees And Penalties For Non-Compliance In GSTR-7
The Bottom Line
The lack of a clear framework and the unique characteristics of digital assets have left many questions unanswered. As stakeholders, regulators, and governments grapple with the complexities of taxing cryptocurrency, it’s crucial to stay informed and adapt to the changing landscape. Until a comprehensive and universally accepted approach is established, the bottom line is that navigating GST in the realm of cryptocurrency remains a challenge, subject to ongoing debate and interpretation.
Also Listen: GST registration requirements for additional places of business
Frequently Asked Questions:
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Is GST applicable to cryptocurrency?
Thus, GST applies to the sale of cryptocurrency in India. Cryptocurrency trading, i.e., the sale of crypto, is taxable under the GST Act since it is not explicitly exempted from GST. Further, the crypto exchanges are liable to pay GST on their services.
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How is Indian crypto taxed?
In India, cryptocurrency is categorised as a Virtual digital asset and is subjected to tax. The Income from buying and selling cryptocurrency is taxed at the rate of 30% (plus 4% cess) as per section 115BBH.
