GST Applied to Crypto Transactions Soon. How It Might Affect Traders? 

According to a recent report, framing these rules would stop any revenue loss to the exchequer caused by a lack of understanding regarding the true nature of these assets. The report also stated, citing sources familiar with the development, that GST rates for cryptocurrencies may range from 18 to 28%. 

The finance ministry seeks to “define the characteristics of cryptocurrencies, their usage, and how they fit into the existing legal framework,” according to a report by Mint. The two sources, who asked for anonymity, stated that once the legal nature has been determined, the appropriate GST rate will be set. 

“GST is currently levied on services, so we need to determine whether crypto assets are declared as a good or service before we can discuss whether it applies to crypto assets. We can offer a discounted price for it. There’s no guarantee that it will be 18 or 28 percent. possibly in between those. We’ve talked about it a bit, and we’ll make a decision soon,” one of the two told the newspaper. 

Currently, the government levies a 30% income tax on capital gains earned from virtual assets, including cryptocurrencies, and it also levies a 1% TDS when purchasing them. In contrast to income tax and TDS, which fall under the direct tax category, if GST is imposed on cryptocurrencies, the government will impose an indirect tax on this asset. 

Direct tax or income tax is the only tax system currently applicable to cryptocurrencies. Our direct income includes the direct tax rate of 30% currently levied on “Income from Crypto Asset.” The GST is an indirect tax that is levied on the sale or purchase of goods and services, and it is only owed by consumers. Meaning that the current direct tax system will continue even if cryptocurrency is included in the scope of the GST, according to Sandeep Bajaj, the managing partner at PSL Advocates & Solicitors. Currently, the government levies a 30% income tax on capital gains earned from virtual assets, including cryptocurrencies, and it also levies a 1% TDS when purchasing them. In contrast to income tax and TDS, which fall under the direct tax category, if GST is imposed on cryptocurrencies, the government will impose an indirect tax on this asset. 

Direct tax or income tax is the only tax system currently applicable to cryptocurrencies. Our direct income includes the direct tax rate of 30% currently levied on “Income from Crypto Asset.” The GST, on the other hand, is an indirect tax that is levied on the sale or purchase of goods and services, and it is only owed by consumers. Meaning that the current direct tax system will continue even if cryptocurrency is included in the scope of the GST, according to Sandeep Bajaj, the managing partner at PSL Advocates & Solicitors. 

“It is anticipated that the current taxation system will change to accommodate the taxation of cryptocurrencies, particularly given the potential introduction of a tax rate that is different from the slabs that are currently in place. However, further changes are entirely dependent on how the government handles cryptocurrency-related transactions “noted Miglani Varma & Co. managing partner Nikhil Varma. 

“The applicability of GST has been kept informally in abeyance until the finalization of the rules around cryptocurrency,” continued Ankit Jain, Partner at Ved Jain & Associates.” 

What About Crypto Transactions When the GST Regime Introduced? 

Before the government issues new tax regulations for them, it won’t be clear how cryptocurrency transactions will be handled in the future. According to Aditya Chopra, managing partner at Victoriam Legalist, “goods” in the context of the GST law include all forms of movable property other than cash and securities. Since “money” is only considered to be legal tender or foreign currency that the RBI accepts, digital assets are not considered “money” under the GST. Additionally, digital assets do not fall under the GST law’s definition of “security.” 

“Crypto will be considered a “Good” and GST shall be levied, at the determined rate, on the price of such Crypto, if it (GST) is charged on the entire or gross value. In contrast, any service fees or transaction fees for exchanging cryptocurrencies will be subject to the determined rate of GST if it is imposed on those fees, according to Bajaj. 

What Effect Will This Have on Indian Crypto Trading? 

Crypto trading in India has suffered since the implementation of the income tax rule and the subsequent TDS provisions, with major exchange platforms recording lower trade volumes. 

“While the introduction of Direct Tax on Crypto has already weakened investor interest, the introduction of GST will exacerbate this. On the other hand, the decision to tax cryptocurrency will undoubtedly allay investor concerns about an outright ban on the currency in the nation, according to Bajaj. 

Chopra claimed that if such a regime is implemented, trading volumes will decrease nationwide. “Trading volumes would decline across markets, and traders would turn to foreign exchanges, which are outside the purview of the Indian government. Additionally, users would try to transfer their cryptocurrency holdings from exchanges to personal wallets. Decentralized exchanges may also establish a direct line of communication with clients for commercial endeavors as a result,” he added. 

The trading of cryptocurrencies is anticipated to become more difficult as a result of exchanges’ need to keep accurate records of their clients to be able to comply with them in real-time. 

Summary 

Trading in cryptocurrencies would become quite challenging with the implementation of the GST regime. The type of traders who must charge GST and those who do not will be specified by law. Additionally, there may be categories of traders who are eligible for input tax credits for the GST paid on purchases of cryptocurrencies and those who are not.