Govt mulling levy of I-T, GST on cryptos; Bill in Winter Session

The Hindu Businessline, November 08, 2021

No currency status, but to be allowed only as an investment vehicle Cryptos are likely to attract both income tax and GST.

A comprehensive Bill on crypto will detail the taxation. The Bill is expected to be introduced in the the Winter Session of Parliament, starting later this month. Meanwhile, the Standing Committee on Finance will initiate detailed discussions on crypto assets at its November 15 meeting.

A top government source told BusinessLine that the groundwork for legislation on cryptos is getting readied.

“One of the key issues is taxation. If there is gain or income from crypto, it should be taxed per capital gains rules. Similarly, if there is service involved in the transaction, then GST needs to be levied,” he said.

This means the intent to tax is expected to be mentioned in the legislation, and then provisions will be added in the Finance Bill to facilitate imposition of direct tax. For tax on transaction service, the Goods and Services Tax Council will take a final call.

On whether cryptos are to be treated as a currency or an investment asset, there is no clarity. It is highly unlikely to get the status of a currency. “That is unlikely… There is a system of fiat currency where currency notes and coins are backed by statute and regulated by the RBI in consultation with the government and that will continue,” the source said, suggesting investment asset category for cryptos.

While currency and banking products are regulated by the RBI, investment assets such as equity and commodity, are overseen by the Securities and Exchange Board of India.

RBI’s reservations

The RBI has repeatedly conveyed its reservation on cryptocurrencies. RBI Governor Shaktikanta Das is on record that: “We have major concerns around cryptocurrencies,which we have conveyed to the government.”

“But within the government, the feeling is that the RBI’s objections are too stringent and centred around a ban as in China. There are examples of moderate regulations by European countries. The effort is to find a middle path,” said the source. This could mean no complete ban, as earlier proposed.

Just before the Budget Session earlier this year, the government had released a list of Bills including one titled ‘The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021’. Its purpose was to “create a facilitative framework for creation of the official digital currency to be issued by the Reserve Bank of India. The Bill also seeks to prohibit all private cryptocurrencies in India. However, it allows for certain exceptions to promote the underlying technology of crytptocurrency and its uses.”

The Bill appeared to be based on the recommendations of the SC Garg Committee formed by the Centre. The Committee had recommended banning cryptocurrencies but instead creating an official digital currency.

A joint advertisement by Indian crypto exchanges and industry bodies said that crypto investments by Indians have crossed ₹6-lakh crore. There are reports, quoting research firm CREBACO, that the user base has crossed 10 crore.

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