The Union Budget 2022 has inter alia introduced a levy of 30% tax on income from cryptos and other digital assets with no offset and 1% TDS, discouraging the crypto community. While the crypto community in India is still coping with the aftermath of the levy of income tax, there have been media reports that the Government is considering a levy of GST @ 28% on crypto activities. Crypto activities include the sale and purchase of crypto tokens on various exchanges, holding these in centralised and decentralised wallets, staking on various platforms and mining (generation) of crypto.
Classification of cryptocurrencies under India’s GST regime
Under the GST law, ‘goods’ inter alia means every kind of movable property other than ‘money’ and ‘securities’. Further, ‘money’ means legal tender or foreign currency recognised by RBI, therefore, digital assets are not classified as ‘money’ under GST. Also, digital assets do not fall within the meaning of ‘security’ defined under GST law.
The Constitution Bench of the Supreme Court in the landmark judgement of Tata Consultancy Services, laid down a three-fold test to deem software as ‘goods’ i.e. (a) its utility (b) capability of being bought and sold, and (c) its capability to be transmitted, transferred, delivered, stored, and possessed. Cryptos are intangible, have a use case and are made, marketed, and stored on physical servers. They can be bought and sold, transmitted, transferred, delivered, stored, and possessed. Therefore, it may be inferred that cryptos are closest to being regarded as ‘goods’ and may be classified so under the GST law.
Possible taxability of various crypto activities in India
Clarity with regards to the taxability of crypto transactions, their valuation and quantification of tax liability under GST is the need of the hour. Ambiguity in the law, coupled with delayed regulatory dispensation, could cause significant hardship to this industry. Crypto Global Outlook and Indirect Taxes
While there are some deviations, most of the tax jurisdictions have issued guidelines treating cryptocurrency as a form of property. Some countries have classified it as a currency or a form of money, owing to the fact that it can be exchanged for conventional currencies and can be used for the purchase of goods or services, while others have classified it as a ‘commodity’.
Globally, different countries have a different outlook on the taxability of cryptocurrency – In the USA, few States have addressed cryptocurrency transactions in state sales and use tax laws/guidance wherein it is treated as a medium of exchange. Whereas in Korea and other countries, there are no clear provisions for VAT treatment of virtual assets. Further, countries such as Germany, Singapore, Malaysia and Portugal have exempted cryptos from tax, subject to conditions.
The levy of taxes on cryptocurrency should be considered a welcoming move from the Government as it implies acceptance of technology officially by the Government. However, time and again, cryptos in India have been linked to gambling, tax evasion, etc. and reports of 28% GST would only add to the despair of the industry. A well-thought-out and efficient taxation structure is required to regulate the cryptocurrency market which not only generates income for the Government but also ensure that the industry in India sustains and grows.
(Gunjan Prabhakaran, Partner and Leader – Indirect Tax and Pratik Shah, Director- Indirect Tax, BDO India)