Government of India propose to classify digital assets under Goods and Services Tax (GST)
According to reports, to include cryptocurrencies for taxation purposes government of India is working to make amendments to classify the digital assets under Goods and Services Tax (GST).
As per report, only 18% GST is currently levied on the entire value of transactions of services offered by crypto exchanges. This is categorized under financial services. The report further stated that GST officers view and compared cryptocurrencies to casinos, lotteries, gambling, and horse racing, which are all taxed at 28% on the entire transaction value. 3 percent of GST is levied for gold.
An official said that clarification is needed regarding the levy of GST on cryptocurrencies and whether on the entire value it has to be levied. He said, it's a matter of determining whether cryptocurrencies can be classified as goods or services, as well as removing any doubt on whether it can be regarded as a claim.
According to another official, if GST is imposed on the entire transaction of cryptocurrencies, then the tax rate should be 0.1 to 1%. He confirmed that discussion on the tax rate whether it will be 0.1% or 1% is at initial stage. “First, a decision on classification will have to be finalized and then the rate will be discussed.” the official told.
The Goods and Services Tax (GST) law does not clearly state how cryptocurrency should be classified. A legal framework must be considered when classifying virtual digital currencies in the absence of a law regulating them.
As per finance minister Pankaj Chaudhary, RBI is working on to enable with a digital currency for payments including bulk payments between countries, large transactions between institutions, large transactions between central banks of each country.
Budget 2022 taxation on cryptocurrency imposed by government
Taxation of crypto assets had been clarified in the 2022-23 budget. Last week J.B. Mohapatra chairman of the Central Board of Direct Taxes (CBDT) declared that in India, crypto traders and investors would start paying a 30% tax I-T plus cess and surcharges on gains from beginning 1st April. The Budget 2022-23 also proposed that 1% tax will be deducted at source (TDS) on payments towards virtual currencies beyond 10,000 in a year and taxation of such gifts in the hands of the recipient. This will come into effect from July 1, this year 2022. TDS would be limited to 50,000 annually for specified persons, including individuals and HUFs who are required to have their accounts audited under I-T Act.
India planning to launch CBDC:
At the beginning of this month Reserve Bank of India (RBI), the country's central bank, declared that it would issue a central bank digital currency (CBDC) rather than a cryptocurrency that RBI could regulate. Pankaj Chaudhary, India's state minister in the Ministry of Finance, in his address to India’s upper house of parliament said that the central bank does not have plans to issue a cryptocurrency.
CBW - External Analyst