Crypto taxation

Crypto taxation

Subject: Economy

Section: Fiscal Policy

Context: The government is working on the classification of cryptocurrency as goods or services under the GST law, so that tax can be levied on the entire value of transactions.

Content:

• Currently, 18 per cent Goods and Services Tax (GST) is levied only on services provided by crypto exchanges and is categorized as financial services
• Cryptos, by nature, are similar to lottery, casinos, betting, gambling, horse racing, which have 28 per cent of GST on the entire value. Besides, GST at 3 per cent is levied on the entire transaction value in the case of gold.
• The Goods and Services Tax (GST) law does not clearly state about the classification of cryptocurrency and in the absence of a law regulating such virtual digital currencies, the classification has to take into account whether the legal framework classifies it as actionable claim.
• An actionable claim is a claim which can be made by a creditor, for any type of debt other than a debt secured by mortgage of immovable property.
• The 2022-23 Budget has brought in clarity with regard to the levy of income tax on crypto assets. From April 1, a 30 per cent I-T plus cess and surcharges, will be levied on such transactions in the same manner as it treats winnings from horse races or other speculative transactions.
• The Budget 2022-23 also proposed a 1 per cent TDS on payments towards virtual currencies beyond Rs 10,000 in a year and taxation of such gifts in the hands of the recipient. The threshold limit for TDS would be Rs 50,000 a year for specified persons, which include individuals/HUFs who are required to get their accounts audited under the I-T Act.
• The provisions related to 1 per cent TDS will come into effect from July 1, 2022, while the gains will be taxed effective April 1.
• Separately, the government is working on legislation to regulate cryptocurrencies, but no draft has yet been released publicly