The government is working to classify cryptocurrency as goods or services under the GST Act so that taxes can be levied on the entire value of transactions.
Currently, 18 percent Goods and Services Tax (GST) is levied only on services provided by crypto exchanges and is categorized as financial services.
GST officials believe that cryptos are naturally similar to lotteries, casinos, betting, gambling and horse racing, which account for 28 percent of GST on total value. In addition, gold is subject to a 3 percent GST charge on the entire transaction value.
“Clarity is needed regarding the levy of GST on cryptocurrencies and whether it should be levied at full value. We look at whether cryptocurrencies can be classified as goods or services and also remove any doubt as to whether it is an enforceable claim,” he said. an officer.
Another official said that if the GST is levied on the entire transaction of cryptocurrencies, the rate could be in the range of 0.1 to 1 percent.
“Talks about the tax rate are in a nascent stage, whether it would be 0.1 percent or 1 percent. A decision on the classification needs to be finalized first and then the rate will be discussed,” the official told PTI.
The Goods and Services Tax (GST) Act does not clearly state about the classification of cryptocurrency and in the absence of a law regulating such virtual digital currencies, the classification must take into account whether the legal framework classifies them as a legal claim.
An appealable claim is a claim that can be brought by a creditor for any type of debt other than a debt secured by a mortgage on real estate.
The Budget 2022-23 has brought clarity regarding the levy of income tax on crypto assets. As of April 1, 30 percent IT plus taxes and fees will be levied on such transactions in the same way as horse racing profits or other speculative transactions.
The 2022-23 budget also proposed a 1 percent TDS on payments to virtual currencies above Rs 10,000 in a year and taxation of such gifts in the hands of the recipient. The threshold for TDS would be Rs 50,000 per year for certain individuals including individuals/HUFs who are required to have their accounts audited under the IT law.
The provisions regarding 1 percent TDS will come into effect from July 1, 2022, while profits will be taxed from April 1.
Separately, the government is working on legislation to regulate cryptocurrencies, but no draft has been made public yet.
AMRG & Associates Senior Partner Rajat Mohan said useful claims, other than lottery, betting and gambling, are not claimable by GST.
“Private cryptocurrency cannot be called ‘money’ nor categorized as ‘securities’ for taxation, what remains to be verified is whether the legal framework would categorize the same as ‘actionable claim’ or not,” Mohan added.
This post crypto tax: government is working on classification of cryptocurrency according to GST law
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