INDEX
- GST Rates on Hospitality Services
- Impact of GST on the Hospitality Sector
- Challenges Faced by the Hospitality Industry Under GST
- Recent Developments in GST for the Hospitality Inudstry
GST on Cryptocurrency
GST Applicability on Cryptocurrency
In the 2022 Budget, the Indian government made significant changes regarding the taxation of virtual digital assets (VDAs). A 30% income tax was imposed on profits made from transferring these assets, along with a 1% tax deduction at source (TDS) on every trade involving VDAs. It was also clarified that losses from these assets cannot be set off against any other income. However, there was no clear guidance on the applicability of Goods and Services Tax (GST) on cryptocurrencies, leaving traders and investors wondering whether it would be applicable to their transactions.
This article explores the current GST laws and their potential applicability to cryptocurrencies and digital assets.
Defining Cryptocurrency and Digital Assets under GST
The GST Act does not provide a specific definition for cryptocurrencies or digital assets. However, based on the 2022 Budget’s definition, virtual digital assets are considered any form of information, code, number, or token that can be exchanged or used in financial transactions. This includes not only cryptocurrencies but also non-fungible tokens (NFTs) and other digital assets defined by the government. Notably, fiat currencies (such as the Indian Rupee or foreign currencies) are excluded from this definition.
Determining the Scope of Supply under GST
Before determining whether GST applies to virtual digital assets, we need to classify them as either goods or services under the GST framework:
- Goods under GST refer to movable property, including items like crops, actionable claims, and goods attached to land (which must be severed before being sold). However, money and securities are excluded from the definition of goods.
- Services under GST refer to everything that is not classified as goods, money, or securities. This includes activities like currency conversion for which a separate charge (commission or interest) is made.
Given these definitions:
- Cryptocurrencies and digital assets do not qualify as money or securities.
- They are, therefore, categorized as goods under GST laws.
Since the sale of virtual digital assets is not listed under Schedule III of the GST Act (which defines exempted goods and services), GST applies to the sale of these assets.
Who is Responsible for Paying GST on Cryptocurrency?
According to GST law, the supplier of goods or services is responsible for collecting and paying GST. In the case of cryptocurrencies, this means that the seller (whether an exchange or an individual) is responsible for levying and collecting GST from the buyer.
This applies whether the sale takes place through crypto exchanges or other means.
What is the GST Rate and HSN Code?
Currently, there is no specific HSN code (Harmonized System of Nomenclature) or GST rate defined for cryptocurrencies or digital assets. However, some businesses reference HSN Code 960899 (classified as “other miscellaneous articles”), which falls under the highest GST rate of 18%.
- Only businesses whose annual turnover exceeds Rs. 40 lakhs (or those voluntarily registered under GST) are required to pay GST.
Government of India GST Law (for in-depth legal provisions regarding GST).
Link: https://www.cbic.gov.in/
Input Tax Credit (ITC) Claims for GST on Cryptocurrency
According to GST law, businesses can claim input tax credit (ITC) on GST paid for business purposes. This means that businesses involved in cryptocurrency transactions can offset the GST paid on purchases related to cryptocurrency activities, such as:
- Broker commissions,
- Consultancy services,
- Software used for trading,
- Costs associated with generating digital assets.
However, ITC cannot be claimed for personal transactions.
(For more Detailed Info. on Input Tax Credit)
Advance Rulings and Clarifications
Several crypto exchanges in India are seeking advance rulings to clarify the GST applicability on cryptocurrency transactions. As the cryptocurrency market grows (with over 10 crore investors in India and cryptocurrency investments worth more than Rs. 400 crore), the issue of GST on digital assets has become more pressing. These inquiries are a crucial step toward gaining clearer guidelines on the taxation of digital assets.
Conclusion
The taxation of cryptocurrencies and digital assets under GST remains an evolving area. While cryptocurrencies are categorized as goods under GST, there is still no clear framework for their taxation. The 18% GST rate, based on HSN Code 960899, applies to cryptocurrency transactions, but businesses must stay alert for any future updates or clarifications from the government.
As stakeholders continue to seek clarity on these issues, it is essential for businesses and traders to stay informed and adapt to the ever-changing landscape of cryptocurrency taxation in India. Until a comprehensive, universally accepted approach is established, navigating GST in the cryptocurrency space remains challenging and subject to ongoing debate and interpretation.