The Indian government tax authorities are considering a tax on cryptocurrency transactions that could be levied retroactively from July 2017. The new tax will also be applicable to miners who received block rewards as well as crypto exchanges who collected fees from their users.
The Central Board of Indirect Taxes and Customs (CBIC) is considering a goods and services tax (GST) on these transactions. They are mulling over an 18% tax, which is the second highest GST tax in the national. Sources close to the board, who claim ‘direct knowledge’ of the proposal said that all the tax will be imposed retroactively and will be applicable on all trades that took place after July 1, 2017.
The CBIC is an agency of the central government, working within the Ministry of Finance, under the Department of Revenue. The board is currently reviewing the proposal and a final version will be presented to the GST council later, which is chaired by the finance minister. They are planning to categorize these digital coins as intangible goods. If the proposal is finalized, then the ownership of digital coins will get legal status in the country and hence, can be treated as other digital properties like software.
Another clause in the proposal advises the council to apply an integrated goods and services tax on all cross-border transactions. This proposal, if accepted, will make cross-border crypto transactions similar to imports and exports. This will give them legal status but as they are deemed as ‘assets’ they will not be treated as simple financial transactions.
Apart from this, miners in the country will also have to register with the government and pay taxes on the block rewards they receive. However, registration will only be compulsory when the block reward value exceeds 2 million rupees. Exchanges, on the other hand, will have to register with the government and must pay a similar 18 percent tax on their commissions. If overseas exchanges operate in India, they will be subject to paying integrated GST on their earnings.
The goods and services tax will also be levied on cryptocurrency wallets. The details of the tax code are still unclear. How the government plans to tax the wallets is also unknown. It is evident that the government wants the crypto wallet service providers to register with them.
Ernst & Young consultant in India, Abhishek Jain, predicts that creating legal grounds for the new tax codes on cryptocurrency transactions will be a “relatively simple task, one that could be accomplished by issuing a circular.” However, when cryptos are taxed, whether as a currency or as securities, some legislative action will be needed.
The Income Tax Department of India sent noticed to several cryptocurrency holders in the country for not declaring, “income while filing taxes and have not paid tax on the profit earned by investing.” On the other hand, the Reserve Bank of India in April asked all banking and financial institutions to stop transacting with crypto businesses altogether with immediate effect. This created widespread panic in the country.
