• Notification Date: 21-03-2022
• Notification No: N/A

Cryptocurrency to be classified under the GST Law by Government

At present, the rate of Goods and Services Tax (GST) applied on the exchanges of cryptocurrency is 18 per cent. Crypto exchanges are categorized as financial services at present. The Central Government is considering classifying cryptocurrency under the GST Law. With this new initiative, it would be possible to levy tax on the entire value of the crypto transaction.

According to the statement of GST officials to the PTI news agency, cryptocurrencies are similar to casinos, gambling, and betting. All these games are charged with 28 per cent GST on the entire value of transactions.

In the case of gold, 3 per cent of GST is levied on the entire transaction value.

The statement of another GST official states that if the tax is applied on the entire transaction value of the cryptocurrencies then the rate of the GST is supposed to range between 0.1-1 per cent. In order to decide the rate of GST on the transaction values of cryptocurrencies, the classification decision is required to be finalised at first. 

There is no specific classification in the GST framework for classification. Since there is no particular law to regulate such virtual digital currencies like crypto, the classification of cryptocurrencies is required to consider whether the law classifies the crypto under GST as an actionable claim.

The term ‘actionable claim’ refers to a claim that can be claimed by the creditor. It can be claimed for any type of debt except for a debt that is secured by mortgaging some immovable property.

The new Budget of the financial year 2022-23 has brought necessary clarity in the matter of applying Income-tax on crypto assets. From 1 April onwards, 30 per cent of Income-tax charges along with the cess and surcharge will be applicable on crypto transactions. Income-tax will be applied on cryptocurrencies at the same rate as applied on other speculative transactions and gambling, lottery, and betting.

Budget 2022-23 has also proposed the application of 1 per cent TDS on the payments that are made through virtual currencies. The extra 1 per cent charges TDS will be applicable for transactions beyond Rs.10,000 in a year along with the taxation of these gifts in the hands of the recipient.  

For specified persons, the threshold limit for charging TDS would be Rs.50,000 for a year. This facility would be available for individuals or HUFs who are required to get their accounts audited under the Income-tax Act.

The new provisions concerning the applicability of TDS on crypto transactions will be effective from 1 July, 2022. The gains will be charged with TDS from 1 April, 2022.