Govt bringing cryptocurrency under GST? Here's what you need to know

New Delhi: The government is attempting to bring cryptocurrencies under the purview of the Goods and Services Tax (GST) so that the total value of transactions can be taxed. Currently, bitcoin exchanges are subject to an 18% GST slab on services rendered to users in the financial services category.

GST officials believe that cryptos, by definition, are akin to lottery, casinos, betting, gambling, and horse racing, all of which are subject to a 28% GST on the total value. Furthermore, in the event of gold, a 3% GST is paid on the whole transaction amount.

"There is a need for clarity on the levy of GST on cryptocurrencies, and whether it has to be levied on the entire value. We are looking into whether cryptocurrencies can be classified as goods or services, and also removing any doubt on whether it can be called an actionable claim," an official told PTI. The GST rate on cryptocurrency will be determined only after the classification is completed.

If GST is paid on the whole value of bitcoin transactions, the rate might be in the range of 0.1 to 1%, according to another official. "The tax rate, whether it is 0.1 percent or one percent, is still being disputed." "First, a decision on the asset's classification must be made, and then the tariff will be addressed," stated another official.

Because there is no clear definition of cryptocurrency in the Goods and Services Tax (GST) law, and no law governing such virtual digital currencies, the classification must assess whether the legal environment qualifies it as an actionable claim. A creditor can make an actionable claim for any type of debt that is not secured by a mortgage of immovable property.

The government has suggested in the Union Budget 2022-23 that the transfer of any virtual/cryptocurrency asset be taxed at 30%. There will be no deductions save for acquisition costs, and no transaction losses will be allowed to be carried forward.

Today, in a major blow to the crypto business, the government emphasised that under Budget 2022 measures, investors will not be able to set-off losses in one crypto asset against losses in another. Furthermore, mining infrastructure will not be deductible as a cost of acquisition.

In addition to the 30% tax, the Union Budget 2022-23 proposes a 1% TDS on the transfer of such assets. Tax experts were divided on whether investors could deduct losses in one cryptocurrency against losses in another. Set-off of losses refers to the process of offsetting losses against the profit or income of that particular year. This option is accessible for stock investments.

"As per provisions of the proposed section 115BBH to the Revenue-tax Act, 1961 (the Act), loss from the transfer of VDA would not be allowed to be set off against income coming from the transfer of another VDA," Minister of State for Finance Pankaj Chaudhary said the Lok Sabha on Monday. He was responding to Lok Sabha Member Karti Chidambaram's questions about the status of Bitcoin.