A GST committee is believed to be studying various crypto activities such as trading, wallet, and staking to formulate appropriate tax provisions.
The Indian government’s strict stance on the crypto sector seems to be gathering more steam. In the latest development, the Goods and Service Tax (GST) Council reportedly plans to impose the highest 28% GST slab for crypto activities.
Digital Assets at Par With Gambling
Quoting unnamed sources, media reports suggested that the thinking in the GST Council is that crypto activities should be treated at par with casinos, lottery, gambling, and horse racing. All these endeavors with speculative nature attract 28% GST.
Right now, 18% GST is levied on crypto exchanges, considered as intermediaries selling assets from foreign crypto exchanges to Indian people and formally categorized as financial services.
As per the reports, the GST council has constituted a law committee to study different digital asset activities such as trading, wallet services, and staking to prepare their tax recommendations.
“There are various aspects of cryptocurrencies – the transactions involving cryptos, cryptos being used to make purchases, cryptos being received as payments. All these aspects are under examination and will be discussed by the law committee,” CNBCTV18 quoted an unnamed source as saying.
Too Many Taxes on Crypto Activities
Besides the anticipated 28% GST, crypto investors are required to pay 30% capital gains tax and 1% TDS. There are also some cess and surcharges to be paid by the investors.
The 28% GST on crypto activities may affect both digital asset businesses and individuals depending on the nature of transactions. A state finance ministers’ meeting early this month unanimously endorsed 28% GST for speculative activities such as betting and gambling. But it left the question of whether the tax should be levied on gross or net valuation for further deliberations.
Right now, there is no clarity as to what elements of a transaction will be taxed. According to experts quoted by CNBCTV18, the 28% GST should be “on the margin or service element of the aggregator and not on the total consideration of cryptocurrency supply.”
Indian Government’s Strict Stance
Lack of clarity on the applicable GST slab resulted in Indian tax authorities charging 11 crypto exchanges with tax evasion of nearly $1.08 million early this year. These exchanges were penalized and recovered $1.12 million, Minister of State for Finance Pankaj Chaudhary informed the Indian parliament in March 2022.
Last month, several Indian crypto exchanges halted the deposit option in rupees after local regulators completely snapped instant retail payment services to them. The exchanges included Coinbase, which had launched in the Indian market only three days earlier, Binance-controlled WazirX, and CoinSwitch Kuber.