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Crypto Under GST: All You Need to Know 

Time and again, the world of cryptos in India has been linked to words such as gambling, tax evasion, etc. Despite truly realising the power of cryptos and the technological change that blockchain networks bring with them, crypto investors have always been on edge owing to the absence of government regulations required to establish and strengthen the crypto ecosystem. 

Investors have been in a constant dilemma about how the Goods & Service Tax (GST) will be made applicable to crypto-assets in India. However, India’s Finance Minister, Honourable Nirmala Sitharaman, made some key announcements in the 2022-23 finance budget about how GST will be applied to crypto in India and what percentage of income tax will be levied on crypto gains. 

This article talks about the risks associated with cryptos, India’s current stand on how to tax crypto investments and crypto exchanges, and the future of crypto investors in terms of taxation in India. 

Risks in Crypto assets

Cryptos are virtual coins that were developed to conduct peer-to-peer (P2P) payment transactions where there is no need for the intervention of physical banks. Such crypto coins are currently traded on several crypto exchanges in India. The rationale behind developing a P2P system was decentralisation, and the model of decentralisation inherently poses a challenge to the government institutions that work on a centralised payment system model. 

Fiat money printed by government institutions is usually backed by reserves of assets such as gold, bonds, etc. However, the majority of crypto coins are not backed by any reserve of assets. They simply work on demand and supply by investors, traders, etc. Despite all the good that comes from blockchain technology, the above points pose a challenge for the government. To regulate such asset classes that are risky but not dispensable, the government of India took some decisive steps to regulate the entire crypto ecosystem. 

Indian GST Regulations On Crypto Investments 

The journey of crypto has come a long way in India. What started as a cautionary notice issued against trading in virtual currencies by the Reserve Bank of India (RBI) in 2013 was followed by a circular vide notification in 2018 for banning crypto trade in India and not letting any bank facilitate virtual currencies. It was then followed by the quashing of the RBI’s circular for banning crypto trade by the Honourable Supreme Court of India in 2020. The Honourable Supreme Court ruled that banks stopping to deal in crypto or providing services to crypto is illegal. 

In the winter session of the Parliament in November 2021, the government planned to introduce “the crypto and regulation of the official digital currency bill”. Recently, in the February 2022 Finance Bill, some key announcements were made regarding cryptos. 

Firstly, the government of India plans to introduce a digital currency of its own using proprietary blockchain network technology. Secondly, key announcements were made to direct taxation on crypto investments, such as 30% income tax plus cess and surcharges on the gains made on crypto investments. While paying 30% income tax, no loss can be offset against the crypto coin. So, for example, if you have a profit of INR 1 lakh and you have a loss of INR 1 lakh, you will still end up paying INR 30,000 on your profit. 

In addition to direct tax, there is Tax Deducted at Source (TDS), which will be charged to the tune of 1% on any transfer of crypto investments. In the 2022-23 budget, 1% TDS was proposed on payments for cryptos in excess of INR 10,000 in a year. TDS will be charged at a limit of INR 50,000 for individuals/HUF whose accounts need to be audited under the IT act. Lastly, unlike tax-exempt gifts received in other asset classes, gifts given via crypto coins will be taxed at the recipient’s end. 

These were the direct tax implementations on crypto investment; let us now discuss indirect taxes such as the GST on crypto. 

Currently, GST regulations on crypto investments are unambiguous. Some officials see crypto as a lottery, gambling, etc., which usually come under the 28% GST tax slab. On the other hand, some GST officials have hinted that if GST were to be implemented on crypto, it would be applicable between the 0.1% and 1% range. 

Also Read About: Crypto Tax In India & Its Impact

The Future Of Crypto In India In Terms Of GST 

In January 2022, the GST team of India had made several investigations on various crypto exchanges in India, such as WazirX, CoinDcx, and Coinswitch Kuber, to investigate if the proper compliance was in place. They were requested to pay 18% GST on the transaction fees that they collected.  

Conclusion

Such initiatives and regulations indicate that the government is slowly but steadily moving towards forming firm regulations regarding cryptos. As investors, one can expect crypto to become a regular part of our investment portfolio. Therefore, one needs to be careful in selecting the right crypto exchange in India that complies with all the government regulations and is safe for making long or short-term investments. One such exchange is Zebpay, which is India’s leading crypto exchange.

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