Mining crypto

Government Set to Bring Crypto Under Indirect Tax Regime

BENGALERU, NEW DELHI : The government has started working on a comprehensive indirect tax regime for crypto assets that would check any loss of revenue to the Treasury due to ambiguity around the true nature of these assets.

The Ministry of Finance plans to define the characteristics of cryptocurrencies, their use and their integration into the existing legal framework, said two people familiar with the discussions in the government. Once its legal nature is decided, the appropriate GST rate will be decided, they said, on condition of anonymity. It could even be a new slab of TPS between 18% and 28%, they added.

“We are still discussing the applicability of GST in case of crypto assets… at the moment it is levied on services… so we need to see if crypto assets are declared as a good or a service. We may have a special rate for this. It’s not necessarily 18% or 28%. Maybe somewhere in between. We had some discussions about it and we will come to a decision soon,” said one of the two people.

This decision indicates the efforts of the administration of indirect taxes to catch up with the changes in the world of technology and finance.

“A better understanding of how cryptocurrencies fit into our legal system is the prerequisite for the GST rate decision,” the second person said.

An email sent to the Department of Finance on Friday seeking comment on the story went unanswered until press time.

Crypto assets have been the subject of heated debate, with the Reserve Bank of India saying they pose a threat to the country’s financial stability. Meanwhile, the Center is in contact with multilateral agencies and the Bank for International Settlements to develop consensus on the regulation of these assets.

Experts have said that while there is clarity on the levy of GST on fees levied by cryptocurrency exchanges on transactions, there is ambiguity around transactions between parties outside of an exchange. as to whether they should be treated as a supply of goods or services or a change of money hands.

“Once there is regulatory clarity on the nature of cryptocurrency and how transactions should be handled, it will be easier to align the tax framework with this regulatory framework,” Abhishek Jain said. , Partner, Indirect Tax at KPMG India.

Globally, central banks are skeptical of the decentralized finance trend due to the risks that speculative cryptocurrency poses to financial stability, a warning that proved prophetic after the sharp decline in the value of some currencies and the implosion of TerraUSD, a stablecoin, this year.

While the government’s current view is that the GST will only apply to the margin or service charge and not to the entire value chain or gross asset value, questions such as the tax treatment of certain transactions such as mining or “airdropped crypto tokens” are under review. .

On the direct tax side, which deals with income or capital gains from crypto transactions, the Center introduced a 30% tax on income from crypto assets starting April 1. It also introduced a 1% withholding tax (TDS) on the payment of virtual assets exceeding 10,000 per year and taxation of these donations in the hands of the beneficiaries from July 1.

Pratik Jain, partner at Price Waterhouse & Co. LLP, said cryptos are treated as financial or securities transactions in many countries and therefore exempt from GST. “Given the complex nature of transactions and varying practices, it would be important for the government to engage with industry and have detailed deliberations,” Jain said. He added that this may also require legislative changes. transactions would also be necessary to avoid unwarranted litigation.”

MS Mani, Partner at Deloitte India, said the lack of a clear framework for GST encompassing classification, rates and eligibility for input tax credit has led to several ambiguities between stock exchanges, buyers and sellers. “Establishing a clear framework would help all crypto market participants adopt uniform treatment of crypto transactions,” he said.

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