Well, this is a recurring question put up in front of various authorities ever since the advent of cryptos in in India and since then the Government has been acting proactively and is on its toes to tax the transactions dealing with cryptos.
Now as far as Income tax is concerned taxing these transactions @ 30% is straight forward however when it comes to GST , this becomes quite trickier as leviability of GST lies in the transaction first being qualified as a good or service then as a supply. GST on crypto currrency has been a subject matter of dispute from the taxability and valuation perspective. So the chronology follows as below:
1. Whether a transaction is a good/service
⇓
2. Whether it is a supply and fulfills all prerequisites
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3.Whether it is a taxable supply
Goods or service – Actionable claim or lottery ?
Nowadays many transactions are taking place involving crypto currencies. For instance a design service is rendered by an Indian entity to an entity in Singapore and the consideration has been paid in crypto. Now you have to choose the correct answer from the given below options: Whether this transaction should be considered as:
a. Supply of goods
b. Supply of services
c. Supply of goods- Export
d. Supply of services- Export
e. Actionable claim hence neither supply of goods nor supply of service
Well I am not expecting any correct answers here as the department is yet to issue any clarification as to whether to treat crypto as goods or as service.
First of all let us analyze the definition of supply as per Section 7 of CGST Act, 2017. The meaning and scope of supply under GST can be understood in terms of following six parameters, which can be adopted to characterize a transaction as supply:
1. Supply of goods or services. Supply of anything other than goods or services does not attract GST
2. Supply should be made for a consideration
3. Supply should be made in the course or furtherance of business
4. Supply should be made by a taxable person
5. Supply should be a taxable supply
6. Supply should be made within the taxable territory
So basically till the time there is any clarity in relation to crypto being a good or a service, there would be ambiguity in relation to it’s nature and classification in GST Law.
Now another interesting debate has arisen in the scenario that whether crypto can be treated as lottery or actionable claim.
As the Goods and Services Tax (GST) law does not clearly state about classification of crypto currency and in the absence of a law on regulating such virtual digital currencies, the classification has to take into account whether the legal framework classifies it as actionable claim.
Currently, 18 per cent Goods and Services Tax (GST) is levied only on service provided by crypto exchanges and is categorized as financial services. This itself is a subject matter of litigation as how can a transaction be subject to 18 % tax without it being clearly mentioned in the law.
Further, GST officers are of the view that cryptos, by nature, are similar to lottery, casinos, betting, gambling, horse racing, which have 28 per cent of GST on the entire value.
Value of supply:
If we consider value of supply of gold, then GST at 3 per cent is levied on the entire transaction value. If this happens then then the rate could be in the range of 0.1 to 1 per cent of the transaction value.
Conclusion:
There is a clarity needed in regard to levy of GST on crypto currencies and whether it has to be levied on the entire value, whether crypto currencies can be classified as goods or services, and also any doubts on whether it can be called an actionable claim need to be clarified
The author can be reached at jainrashi2008@gmail.com.
DISCLAIMER: The views expressed are strictly of the author. The contents of this article are solely for informational purpose. It does not constitute professional advice or recommendation of firm. Neither the author nor firm and its affiliates accepts any liabilities for any loss or damage of any kind arising out of any information in this article nor for any actions taken in reliance thereon.
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