GST on Crypto Currencies in India
Introduction:
Cryptos and NFTs are a buzz these days. Everyone is talking about cryptos these days, especially after the amendment proposed by the Indian Government in the Income Tax Act, 1961 by making profits on crypto transactions taxable in India. But, the legal position under Goods & Service Tax (GST) is unclear and shady. Recently, the Directorate General of GST Intelligence (DGGI), Mumbai conducted a search on a major crypto exchange operating in India. This has made us write this article and understand & estimate the future stand of Indian Revenue Authorities under GST laws. It is also evident in this context that the Central Economic Intelligence Bureau (CEIB) has put forth a proposal to impose GST @ 18% on bitcoin transactions categorizing it under the “intangible assets’ class.
Is Cryptocurrency Goods or Services under GST?
When we talk of Indian GST laws, there has to be a “Supply” of goods or services to bring taxability under GST. If there is no supply in terms of GST, no GST is leviable. Cryptocurrency in no way can be categorized as “Services”, though some activities associated with crypto such as crypto mining, crypto transaction charges levied by exchanges, crypto advisory services are classifiable as “services” on which the Government might propose levy of GST @ 18%.
Now a big question is about cryptocurrency- Is it Goods or not? For answering this question, we must look into the definition of “Goods” as per GST. The definition of “Goods” under GST excludes money and securities. Money refers to Indian legal tender recognized by the Reserve Bank of India (RBI). Cryptocurrencies are not a legal tender in India. However, RBI is soon launching its own virtual digital currency which will be declared as a legal tender by the RBI. Cryptocurrencies don’t find any place in it.
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Further, GST Act defines ‘securities’ with reference to Securities Contracts (Regulations) Act, 1956 where cryptocurrencies do not find any place. Therefore, we can interpret that cryptocurrency are neither money not securities. Hence, cryptocurrency is not ‘Goods’ as per GST law at present. Therefore, if the Government wants to tax ‘cryptocurrencies’, the definition of “Goods” will have to be suitably amended. We would have to discuss the proposed stand of the GST authorities in light of prevailing legal practices across the globe.
When we go through Singapore GST law, the Supply of digital payment tokens by way of any of the following are exempted from GST:
- The exchange of digital payment tokens for currency or other digital payment tokens
- The provision of any loan, advance, or credit of digital payment tokens
Meaning of Digital Payment Tokens under Singapore law:
‘Digital Payment Tokens’ means a digital representation of value that has all of the following characteristics:
(a) It is expressed as a unit
(b) It is designed to be fungible
(c) It is not denominated in any currency and is not pegged by its issuer to any currency
(d) It can be transferred, stored, or traded electronically
(e) It is or is intended to be, a medium of exchange accepted by the public, or a section of the public, without any substantial restrictions on its use as consideration.
Digital Payment Tokens can be obtained via sale or purchase of goods or services, exchange with other tokens, or also through crypto mining. We need to discuss various crypto types of crypto transactions on a case-to-case basis. Please note that the below discussion is only the estimation of the author as to the law that might evolve in the near future.
GST on Supply of goods & services by way of the digital payment token
Digital payment tokens are widely accepted by many e-commerce platforms and even corporates as a mechanism of payment for goods & services. So, a question comes before us as to the taxability of such transactions under GST.
In this regard, the supply of goods & services against the consideration in the form of digital tokens will be liable to GST in the same manner and the rate if the consideration had been settled in cash or banking mode. The supply of digital tokens as a consideration in exchange for goods & services will not be subjected to GST separately. We can take clues from global practice on this issue. Like in South Africa, the issue, of acquisition, collection, buying, selling, or transfer of ownership in crypto assets is exempted from VAT. In Switzerland, transactions involving virtual currencies are out of the scope of VAT, if exchanged for other forms of virtual currencies or for fiat currency.
Further, a supply of digital payment tokens in exchange for fiat currency or other digital payment tokens, and the provision of any loan, advance, or credit of digital payment tokens will be exempt from GST.
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GST on crypto mining services
Generally, there is no close nexus between the service provided by the miner to the persons whose transactions are verified and the block reward received by the miner from the blockchain ecosystem. The parties paying the mined tokens are also not identifiable. Therefore, the mining of digital payment tokens does not constitute a supply for GST purposes. But it should be noted that if a miner provides services to an identifiable party, in return for a consideration namely transaction fees, this would constitute a taxable supply of services and thus liable for GST. We can interpret that in such cases, the person engaged in the mining of digital payment tokens shall be liable to pay GST at the appropriate rate as prescribed by the Government.
GST on supply of Non-Fungible Tokens (NFT)
NFT is the most trending concept in the crypto world nowadays. Even some prominent Bollywood actors have also been rumored to introduce their NFTs. NFTs are basically a type of digital tokens that cannot be exchanged for any object or fiat currency. These are basically digital representations of any artistic work, music & video content rights, images, or any other content which is stored on a blockchain network.
This is to be observed that how the Indian Government decides to tax NFTs. In our opinion, NFTs are nothing but a right in any content stored in a blockchain network so these could be treated as “Intangible Asset” for tax purposes. From a GST perspective, NFTs could be classified under the purview of the services attracting GST @ 18% or 28% at the time of their sale by NFT creator.
GST on Intermediary services for cryptos
Intermediary services provided by any person either in the sale, purchase, or exchange of digital tokens/ NFTs/ virtual currency would certainly fall within the ambit of GST. For example, any crypto exchange like Binance, Wazirx, CoinDCX, etc. charges specified fees or transaction charges for any trade executed through their platform. Such transaction charges or fees will be liable for GST. It is to be seen what rate is prescribed by the GST authorities on such charges. A fair estimate of an 18% GST rate can be taken in this regard. Further, transaction charges paid to any intermediary might also be subjected to TDS under the provisions of the Income Tax Act, 1961.
Final Note:
The Government of India has already made its stand clear by proposing a tax on the gains from crypto transactions under the head of “Income from Other Sources” and introducing a new section 115BBH under the Income Tax Act. MCA has also brought disclosure requirements for the companies dealing in cryptocurrencies in any form. In near future, the Government is expected to come out with KYC requirements and additional disclosure requirements about crypto transactions by any person other than companies. When we talk in the context of GST, the Government is expected to take hints from the position taken by other countries globally and exempt supply (purchase/sale/exchange) of cryptocurrencies from GST and taxing intermediary charges only at an appropriate rate.
Read related articles:
How to open crypto exchange in India
Tax on cryptocurrency transactions in India
Reporting for cryptocurrencies by companies
Disclaimer: The author of the above article is CA Naveen Goyal and it can be construed as his personal opinion. Taxwink is not responsible for any loss or damage caused to any person from the use of the above information. Cryptos are a highly risky and unregulated asset therefore readers should be watchful before making any investments in cryptos. Further, neither the author nor Taxwink has any significant stake in cryptos to date which might be intended to affect the interests of the readers in any manner.
