After months of taking a negative stand against cryptocurrencies and shadow banning it by throttling banks through a RBI circular on April 6th, a new Bloomberg report has revealed that India may be planning to levy 18% Goods and Services Tax (GST) on cryptocurrency trading. According to reports, cryptocurrencies will be treated as intangible goods like software systems. The proposal is currently being evaluated by the Central Board of Indirect Taxes and Customs and will be presented to the GST council before finalizing the terms.
What does India’s proposed cryptocurrency tax state?
- Buying and selling cryptocurrencies — Buying and selling cryptocurrencies like Bitcoin will be treated as supply of goods, and those facilitating these transactions will be counted as offering services
- Valuation — The valuation of any cryptocurrency will be determined through the ongoing market value of the virtual currency in rupees or other fiat currencies
- For transactions in India — If the buyers and sellers are based in India, any cryptocurrency transaction would be treated like supply of software. In this case, the buyer’s location will be treated as the place of supply
- For transactions outside India — Integrated GST would be applicable for transactions outside India and will be classified as import and export of goods. Integrated GST will also be charged on cross-border supplies.
- Cryptocurrency mining — Cryptocurrency mining will be made taxable and will also be treated as a supply of service. Miners making more than Rs 20 lakhs per year will have to register as a business entity with the GST council.
- For transfer and sale activities— The registered person’s address/location will be treated as the place of supply for the purpose of transfer and sale. For non-registered persons, the location of the supplier would be considered as the place of supply.
What’s the future for cryptocurrencies in India?
India continues its love-hate relationship with cryptocurrencies. India seems to be stuck where other countries were a couple of years ago. While recognizing the power of blockchain technology, the Indian government had been constantly warning people about the harms of investing in cryptocurrencies. Indian investors, though enjoy investing in this asset class and at the height of the market every 10th Bitcoin transaction in the world was happening from India. However, RBI put this party to an abrupt halt with their draconian circular which prohibited banks from offering services to cryptocurrency-based businesses and asked them to stop offering banking services to such entities.
While the mainstream media continues to publish false information, cryptocurrencies itself were never illegal. Economic Affairs secretary Subhash Chandra Garg had confirmed on a TV channel that there was no ban on trading of crypto assets. There was also a CNBC Awaaz report which said that the Indian government might be working on a cryptocurrency bill to regulate these digital assets.
This new development has made the Indian cryptocurrency environment more ambiguous. India seems to be conveniently using existing regulation to deal with cryptocurrencies, when the need of the hour is to make crypto-specific regulations instituted by Singapore and Japan. While GST might be a welcome first step, let’s hope that the proposals will evolve as the Indian government learns from other countries across the globe.
If this current proposal is passed, it will mark the beginning of an interesting period for cryptocurrency evolution in the country. As per my understanding, a taxation framework does give the green signal to cryptocurrency-based businesses to operate freely since you cannot tax illegal activities (duh!). In such a scenario, can banks really refuse to offer services to cryptocurrency businesses? Was RBI’s April 6 circular just a temporary ban to give government some time to solidify its stand? Will RBI reverse its decision soon? Or will the RBI ban remain and peer-to-peer cryptocurrency transactions will become the norm?
A lot of these questions should be answered during the Supreme Court hearing on July 20.