NEW DELHI: The government is yet to define whether cryptocurrencies are goods or services before it brings these currencies under the goods and services tax (GST) ambit, as per government sources.
“First, it has to be decided whether cryptos are goods or services. And, if they are goods, then under which tariff item should they come and what should be the GST rate also need to be decided to get clarity related to GST on cryptos,” a government official said.
Currently, a 30% tax is levied on gains made through transfer of these currencies and other virtual assets. Meanwhile, 1% TDS will also apply on crypto transfers from July 1, 2022. In addition, 18% tax is levied on services provided by crypto exchanges.
After the government imposed tax on crypto transfers at 30% from April 1, it has not taken any stance on its regulation. Recently, finance minister Nirmala Sitharaman, in Washington, raised concerns about money laundering and illegal funding including terrorism via cryptos. She said India would take a considered decision on crypto regulation.
As per sources, if GST is imposed on virtual currencies then it will be prospective and not retrospective.
“The government has not commented on legality of cryptos. However, mulling of higher GST and introduction of TDS under income tax along with capital gain provision seems to be aimed at deterring investor participation in the sector. Imposition of higher GST on B2C transaction without mechanism to avail credit will lead to double taxation on crypto trading. This will have a direct impact on the crypto facilitators like brokers, platform and exchanges,” L Badri Narayanan, executive partner, Lakshmikumaran & Sridharan Attorneys said.