Cryptocurrency tax: the government is working on the classification of cryptocurrencies under the GST law

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The government is working on classifying cryptocurrency as goods or services under the GST law, so that tax can be levied on the full value of transactions.

Currently, the 18% Goods and Services Tax (GST) is levied only on services provided by crypto exchanges and is categorized as financial services.

GST officers are of the opinion that cryptos by nature are similar to lottery, casinos, betting, gambling, horse racing, which have 28% GST on the total value. In addition, 3% GST is levied on the total value of the transaction in the case of gold.

“There is clarity needed regarding the collection of GST on cryptocurrencies and if it should be levied on the total value, we are seeing if cryptocurrencies can be classified as goods or services and also removing any doubt as to whether they qualify as an actionable claim,” one official said.

Another official said that if GST is levied on the entire cryptocurrency transaction, the rate could be between 0.1 and 1%.

“Discussions are at a nascent stage on the tax rate, whether it is 0.1% or 1%. A decision on the classification will have to be finalized first, and then the rate will be discussed,” said the manager at PTI.

The Goods and Services Tax (GST) law does not clearly indicate the classification of cryptocurrency and in the absence of a law regulating these virtual digital currencies, the classification must take into account whether the legal framework classifies it as an actionable claim.

An actionable claim is a claim that can be made by a creditor, for any type of claim other than a claim secured by a mortgage on real property.

Budget 2022-23 clarified the collection of income tax on crypto assets. From April 1, a 30% tax, plus tax and surcharges, will be levied on such transactions in the same way it treats winnings from horse racing or other speculative transactions.

The 2022-23 budget also proposed a 1% TDS on payments to virtual currencies in excess of Rs 10,000 per year and the taxation of such gifts in the hands of the recipient. The threshold limit for TDS would be Rs 50,000 per annum for specified persons, which includes individuals/HUFs who are required to have their accounts audited under the Information Technology Act.

The 1% TDS provisions will come into effect on July 1, 2022, while winnings will be taxed from April 1.

Separately, the government is working on legislation to regulate cryptocurrencies, but no plans have been made public yet.

AMRG & Associates senior partner Rajat Mohan said actionable claims other than lottery, betting and gambling are not subject to GST.

“Private cryptocurrency can neither be categorized as ‘money’ nor categorized as ‘securities’ for tax purposes. It therefore remains to be seen whether the legal framework would categorize it as a ‘claim capable of giving rise to a claim’. action” or not,” Mohan added.


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