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Indian govt may introduce GST on crypto; could usher in new regulations

  • 22 Sep 2022
  • Edukating Team
  • 69

Nirmala Sitaraman-led India’s Ministry of Finance seems to be working on a comprehensive “Good and Service Tax” GST while planning to provide clarity on defining the nature of cryptocurrencies and how they fit inside the legal system, according to a report by Livemint.

The GST tax slab on crypto is also aimed at shaping an indirect tax on crypto assets to act as a check against any revenue loss to the exchequer due to the volatile nature of these assets.

The GST rate for crypto could be anywhere between 18 to 28 percent according to the report.

“We are still discussing the applicability of GST in the case of crypto assets right now. It is levied on services, so we need to see if crypto assets are declared as a good or service,” said sources close to Livemint.

“As per the details we have at the moment. The GST will only be applicable on the margin or service fees, and not on the entire value of the asset,” said Rajagopal Menon, Vice President, WazirX.

What does it mean for crypto traders?

“While taxation of virtual digital assets is a welcome step, trading and investments have taken a significant hit ever since the Government introduced a TDS compliance burden. Under the current TDS regime, traders (temporarily) lose 1% of their capital on each trade. An additional GST compliance burden might further discourage participation,” explained Anoush Bhasin, Advisor, and Angel Investor at KoinX.

The Indian government introduced a blanket tax bracket and subsequent TDS on digital assets, including crypto, which subsumed crypto trading volumes dramatically. According to Nomics, a crypto data compiler, the trading volume of crypto in India plunged after April 1, 2022, as recorded by crypto exchanges like CoinDCX, WazirX, and Zebpay.

The tax bracket introduced implied a 30 percent tax and 1 percent TDS on every crypto trade over Rs 10,000 in a year.

“We can see that there has been a rise in app installs and traffic on international crypto exchanges since July 1st after the TDS regulation was implemented in most of the Indian crypto exchanges,” said Menon.

According to a data report by AppTweaks, an analytics firm, Binance alone was downloaded over 750,000 times by Indian users in June and July.

And, if a similar trend is to be noticed after the new tax regime, it would further a similar plunge in crypto trading in India.

“Everybody loses out because of this – the government loses tax revenue, all the user data is stored abroad, Indian exchanges lose business, and Indian consumers may be unknowingly non-compliant with Indian tax laws,” Menon further explained.

The news also comes at a time when heated debates on crypto are continuing with the RBI’s crypto-antagonistic stance, calling it a threat to India’s financial stability.

What to expect?

“A complicated taxation regime, in the absence of overall regulatory guidance and govt support, will leave the Indian crypto ecosystem in limbo,” said Bhasin. “Most industry participants are keen to operate or build out of India as long as the regulator can provide a conducive environment”, he added.

The government is also looking into similar treatment of transactions like mining or airdropped crypto tokens.

“The crypto industry was always for regulation. We are taking baby steps towards crypto regulation; the taxes introduced in the budget were the first step. GST will take this further down the regulatory path. It must be stressed that the tax rates must be reasonable.”- Rajagopal Menon, Vice President, WazirX

India is an important crypto market as it dominates the global crypto adoption index, ranking in the top 10 alongside 154 countries including the US. Recently, the US also released a tentative regulatory framework for digital assets like crypto and NFTs, which has been touted as setting a global template for a regulatory framework.

“It might hinder development in the short run. However, we are positive that the Indian govt will eventually follow the regulatory and licensing path of countries such as Singapore, USA, UK, and Japan,” said Bhasin.

If GST is implemented on goods/services exchanged in the underlying transaction denominated in VDAs, it should be fine. If GST is implemented on the VDA itself, it would severely cripple the investing and trading markets as well as overall participation.- Anoush Bhasin, Advisor and Angel Investor at KoinX

Considering India’s emerging position as a crypto-adoptive nation and its contribution to global politics, the tax regime once implemented to chart the way for many stakeholders and startups in India.

Source from - https://www.indiatoday.in/cryptocurrency/story/indian-govt-may-introduce-gst-on-crypto-could-usher-in-new-regulations-2002478-2022-09-21

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