The Indian Government has started working on a legal framework to implement GST (Goods and Service Tax) on cryptocurrencies. This indirect tax could be anywhere between 18 – 28% and is being implemented to avoid any loss of revenue due to little clarity on the nature of these assets.
The Finance Ministry of India is first trying to understand and define the characteristics of crypto, its uses, and how they can fit into the existing legal framework. After concluding whether cryptocurrencies come under goods or services, an appropriate tax rate will be decided and it could also have a special rate. According to reports, the finance ministry also previously met for a discussion regarding the same at the end of June.
GST on crypto will be an indirect tax that will be added on top of the existing income tax or direct tax that the government charges on crypto transactions. This tax would be applicable to the service fees and not the value of the asset.
According to the report by Live Mint, the aim is to, “define the characteristics of cryptocurrencies, their usage, and how they fit into the existing legal framework.” GST on crypto will be an indirect tax that will be added on top of the existing income tax or direct tax that the government charges on crypto transactions. This tax would be applicable to the service fees and not the value of the asset.
The government previously announced a 30% income tax and 1% TDS on capital gains earned through crypto and virtual assets. Until the government comes out with a specified set of rules regarding cryptocurrencies, the government’s stance on crypto transactions will be unclear.
Crypto trading in India has taken a major hit since the government announced a direct tax on income. Even after the ED raided one of WazirX’s directors, the trading volume on the platform saw around a 54% dip. We can expect a similar response from crypto investors and traders if the government announces GST on crypto assets. The introduction of such taxes may also further complicate crypto trading.