The government may not expand Goods and Services Tax (GST) coverage to more crypto business soon as the industry struggles after imposing a 30% income tax on crypto earnings. fiscal year amid a global meltdown in these assets.
Currently, an 18% GST is only levied on services provided by crypto exchanges, which currently account for the bulk of crypto-related business in India. Apart from exchange services, the crypto ecosystem involves various other activities including mining, wallet services, payment processing, and barter system. Crypto assets refer to decentralized convertible virtual assets based on cryptographically protected algorithms.
The Central Board of Indirect Taxes and Customs (CBIC) and GST Board Committees are seized of matters such as the nature of transactions/deals, how they occur, which entities are involved, whether they are still consumers to consumer or business to consumer, is there a registration system and could there be onshore and offshore transactions. In addition, it must specify whether certain transactions are goods or services.
“While these studies are ongoing, for a deeper understanding of the crypto ecosystem, now is not the right time to cover more activities under GST as the industry says it has been hit hard. through income tax,” a senior official said.
From 2022-23, the government imposed a 30% income tax on any income from the transfer of virtual digital assets (VDAs), with no deductions or loss offsets, which could harm the industry. The government has also imposed a 1% withholding tax (TDS) on all VDA transactions.
Analysts are of the opinion that the government should, however, provide clarification on the GST on foreign exchange services. According to analysts, GST should only be levied on the fees collected by the platform/exchange and not on the value of the transaction reflecting the value of the underlying crypto asset.
Currently, there are disputes due to different interpretations by GST formations as to whether the 18% GST should be levied on the commission or fees charged by crypto exchanges or on the total value of VDAs, as cryptocurrencies are not legally treated as the same legal tender currency.
“There are important aspects of classification and valuation of crypto transactions that require clarification, in addition, alignment is also required on their treatment with international practices. In the current situation, these clarifications would go a long way in bringing back to the market more investors, who might be concerned about the lack of tax clarity,” said MS Mani, partner at Deloitte India.
Despite the taxation of crypto assets, the cryptocurrency industry lacks legality and is unregulated in India. The government is preparing a legal framework for the sector. RBI mentioned that the value of cryptocurrencies is based solely on speculation and expectations of high returns which are not well anchored, so it will have a destabilizing effect on the monetary and fiscal stability of a country.
Cryptocurrency markets around the world have lost over $2 trillion in value over the past year, reflecting their high price volatility. Even though the Indian cryptocurrency market is relatively small, Indian investors have also lost money in the recent crisis. According to a report by crypto exchange KuCoin, the Indian cryptocurrency market is expected to reach $241 million by 2030.