GST on transaction fees not on crypto's value

The government will levy goods and services tax (GST) on the service fees on cryptocurrency transactions, not the digital asset’s gross value, two finance ministry officials said. However, the finance ministry has yet to work out the indirect tax treatment of certain crypto transactions that may fall into actionable claims.

GST applies to goods or services that are supplied for a price; however, certain transactions say, a company giving free crypto tokens to motivate employees or promote its products may not fit this description of supply and may be classified as an actionable claim, which stays out of the purview of GST. The government may approach the GST Council to issue a clarification, the officials said on condition of anonymity.

“GST on crypto-assets applies only on the margins or service fee charged by exchanges and not on the entire value," one of the two officials said. But the government is yet to firm up a policy for GST applicability in case of ‘actionable claims.

“In the case of certain transactions, say mining activity of cryptocurrency or exchange between two persons in crypto assets, we have been examining whether it involves a transaction in the supply of goods or services, or if it is just an actionable claim that is neither goods nor services under GST law," the second official said. He said if it is classified as goods or services, then GST will apply. “One view is that because it is an actionable claim, it is neither goods nor services. That part is not very clear. We are giving a good, hard look, and we will firm up our view in due course," the official added.

There is little clarity on the overall crypto tax front even after the Union budget on Tuesday proposed to tax income from virtual assets at a steep 30%. It will be now up to the GST Council to frame guidance on the indirect tax front. According to experts, the definition of virtual assets in the budget would qualify cryptocurrencies or non-fungible tokens as ‘intangible goods’ and be liable to GST accordingly.

Experts were still unclear whether GST would be imposed on the margin or the gross value of the virtual asset and called for an amendment or a clarification.“If the government says GST will be levied only on margin, then also a clarification or amendment is required saying that for such transactions only the margin was liable to be taxed as they have done in case of second-hand car dealers," said Pratik Jain, partner, Price Waterhouse and Co. LLP. He pointed out that the GST Council should issue detailed guidance or clarify several issues, including whether virtual assets will qualify as ‘goods’ or ‘services’. Based on their classification, the methodology for its valuation should also be clarified, he said, adding many countries are treating these as financial transactions that are exempt from GST.

There is lack of clarity over classification of virtual assets under GST… The service charges applied to customers do attract GST for sure, (but) there is no clarity about GST for prices of cryptos itself and when it gets exchanged through marketplaces," said Sathvik Vishwanath, CEO and co-founder of Unocoin, a cryptocurrency exchange.

Lack of clarity on taxability from the indirect tax standpoint by the GST Council will prevent the emergence of avoidable litigation by ensuring that GST authorities across the country adopt the same treatment for taxation of digital assets, said M.S. Mani, partner, Deloitte.

In December, GST authorities penalized a leading cryptocurrency exchange for evading INR40.5 crore in taxes.

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