A detailed document on cryptos and GST is needed
With the passage of time, it is becoming clear that there will not be an outright ban on cryptocurrencies in India. Ever since the Supreme Court struck down a restrictive RBI Circular in early 2020, action on crypto-exchanges in India has increased multifold.
A crypto-currency Bill appears to be in the offing in the winter session of Parliament. Crypto-exchanges have replaced online gaming companies and real-estate companies as the big-ticket advertisers during cricket tournaments.
The RBI had announced its intent to come out with an official digital currency, in the face of proliferation of cryptocurrencies about which the central bank has many concerns. Regulators and governments have been sceptical about these currencies and are apprehensive about the associated risks.
While the RBI may not make cryptos legal tender, the government seems to be thinking that they are inevitable in the present day and age — evidenced by the fact that they are considering levying GST on cryptos. Perhaps, it will debut in Budget 2022.
If the government wants to impose GST on cryptos, they would not have to worry about lack of provisions in GST laws. One of the methods being thought of is to classify crypto-exchanges as e-commerce platforms so that the ‘tax collection at source’ provisions would apply. Another thought is that those involved in cryptocurrency trading could be categorised as facilitator, brokerage and GST collected on these services.
The government could categorise services provided by overseas cryptocurrency exchanges that allow Indians to trade on their platforms as online information database access and retrieval (OIDAR) devices. Between e-commerce platform, OIDAR and intermediary services, the government would probably stick to the e-commerce option till there is further clarity on the regulatory aspects of cryptos.
Determining the GST rate on cryptocurrency transactions may not be easy, given that virtual coins are not considered an asset, security, or even currency in India. There is an opinion going around that it is important for a cryptocurrency to be treated as an asset, security or currency before GST can be charged on services offered by overseas cryptocurrency exchanges.
Other opinions highlighted that it has to be first determined whether GST will be applicable on all transactions or only on the margins. As on date, most Indian cryptocurrency exchanges pay 18 per cent GST on margins or the commission that they charge.
If the government is thinking of a crypto Bill, they should ensure that it covers all aspects governing virtual currencies and not only their tax aspects. Indian crypto-exchanges have been voicing their discontent over the fact that they are finding it difficult to secure robust payment gateway solutions — a reason why many Indian investors have moved to overseas crypto trading exchanges.
If introduced in Budget 2021, GST would be applicable on cryptos at a time when there are still some grey areas in GST laws. The definition of an intermediary and the tax on their services has been going back and forth for some time till some clarity was introduced last month. The CBIC had been issuing FAQs and Educational Material on many topics related to GST — one can expect one soon with regard to GST on cryptos. A detailed document on cryptos is needed to prevent aggressive assessment orders being passed. There is also a necessity to think of a new HSN/SAC Code for cryptos.
It is obvious that the Balances in Electronic Cash and Credit Ledger cannot be stated in cryptos. Can one pay tax in cryptos? The answer is a negative for now but there can be no two thoughts on the fact that some fintech company located some where in India is working on building a product that permit payments in GST to be made from normal banking channels using cryptos as a reference point.
The writer is a chartered accountant