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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… While currently GST is being levied on the commission charged by exchanges, 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.

While the government is of the view that GST will apply only on the margin or service fees and not on the entire value chain or the gross value of the asset, issues like tax treatment of certain transactions like mining or ‘airdropped crypto tokens’ are also being examined by the Centre.

According to industry executives, while the understanding with the government is that GST will only be levied on the commission or the service fees, some tax officers interpret that GST should be levied on the total value of the crypto asset on a gross basis, requiring clarification. 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. 

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“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," said Rajat Mohan, senior partner, AMRG & Associates.

The industry expects policy-level 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 spokesperson 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 1 July.

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 vis-a-vis tax treatment, exemptions, rate, etc.. 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 only complicate the law rather than yield solutions.

Abhishek Jain, a partner for indirect tax at KPMG in India, said other than issues such as whether crypto transactions fall under ambit of supply of goods or services, applicable GST rate and valuation, 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, etc.," said Jain.

Given this, the industry would be keenly looking forward to the fitment panel report, which would clarify such issues, he added. 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.

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ABOUT THE AUTHOR

Dilasha Seth

" Dilasha Seth is a journalist reporting on macroeconomic policy for the last 11 years. She writes extensively on issues including international trade, macroeconomic data, fiscal policy, and taxation. At Mint, she reports on trade deals that India is signing besides key policy decisions of the Ministry of Finance. She closely tracked and covered the transition to the goods and services tax (GST) regime in 2017 and also writes on direct tax-related issues. In the past, she has worked with Business Standard and The Economic Times. She is based in Bangalore."
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