hit counter

Center starts work on indirect tax regime for crypto assets

Loading...

The central government has started working towards a comprehensive indirect tax regime for crypto assets and transactions with them that would review any revenue losses for the treasury due to the lack of clarity about the true nature of these assets. The Ministry of Finance is now looking at defining the characteristics of cryptocurrencies and their uses and how they fit into the existing legal framework.

Once its legal nature is decided, the appropriate GST rate will be decided, said two people with knowledge of government discussions. It could even be a new GST record between 18% and 28%. The move shows the indirect tax administration’s efforts to keep up with changes in the technology and financial world.

“We’re still debating the applicability of GST in the case of crypto assets… right now it’s being levied on services… so we need to see if crypto assets are declared as goods or services… We can have a special rate for that.” It doesn’t necessarily have to be 18% or 28%…can be anywhere in between. We’ve had some discussions about this and will come to a decision soon,” said one of the two people quoted above.

Loading...

“A better understanding of how cryptocurrencies fit into our legal system is a prerequisite for deciding on the GST rate,” said the second person, who also spoke on condition of anonymity.

Crypto assets have been the subject of heated debates, with the RBI warning of their potential to destabilize the country’s financial integrity, while the central government is in contact with multilateral agencies and the Bank for International Settlements (BIS) to seek consensus on their regulation .

Experts said that while there is clarity about the application of GST to the fee charged by cryptocurrency exchanges for transactions, there is ambiguity for transactions between parties outside an exchange as to whether they are treated as the supply of goods or services or as currency exchange have to .

Loading...

“Once there is regulatory clarity on the nature of cryptocurrency and how transactions are treated, it would be easier to align the tax framework with that regulatory framework,” said Abhishek Jain, Partner, Indirect Taxes at KPMG India.

Globally, central banks are skeptical about the decentralized finance trend due to the risks that speculative cryptocurrencies pose to financial stability, a warning that has proved prophetic following the sharp depreciation of some currencies and the implosion of TerraUSD, a stablecoin, earlier this year .

While the government currently believes that GST should only be levied on the margin or service fees and not on the entire value chain or the gross value of the asset, issues such as the tax treatment of certain transactions such as mining or “airdrop crypto Token” checked by the central government.

Loading...

On the direct tax side, which deals with the income or capital gains from crypto transactions, the central government introduced effective January 1. It also introduced a 1% withholding tax (TDS) on payment of virtual assets representing ₹10,000 in one year, and the taxation of such gifts in the hands of recipients from July 1st.

Pratik Jain, Partner, Price Waterhouse & Co LLP said that in many jurisdictions, cryptos are treated as financial or securities transactions and are therefore exempt from GST. “Given the complexity of transactions and differing international practices, it would be important for the government to engage with the industry and make detailed considerations before deciding how to proceed,” Jain said. He added that legislative changes may also be needed. “Some clarifications or guidance on previous transactions would also be necessary to avoid unjustified disputes,” Jain said.

MS Mani, a partner at Deloitte India, said that although crypto transactions have taken place over the past several years, the lack of a clear GST framework that includes classification, rates and input tax credit has created multiple ambiguities between exchanges, buyers and sellers Has . “Creating a clear framework would help all crypto market participants adopt a consistent treatment of crypto transactions,” he said.

Loading...

While a cryptocurrency policy has yet to be drafted, the Treasury Department is working on a consultation paper addressing how to address the risks associated with cryptocurrencies and their treatment as an asset class. While the Treasury has ruled out crypto’s use case as a currency, it is considering its use as an asset class. The International Monetary Fund believes that crypto assets pose risks to financial stability and could also be misused for money laundering, terrorist financing, and other illicit activities.

Leave a Comment