The taxation of cryptocurrency and other digital assets has been a point of discussion amongst traders for many years. Under Budget 2022, the finance minister brought clarity on the taxation of cryptocurrency by defining it as a Virtual Digital Asset i.e. VDA. Income Tax on crypto, NFT, and other digital assets is leviable at the rate of 30% under Section 115BBH. Further, TDS on crypto transfer is leviable at the rate of 1% under Section 194S of the Income Tax Act. However, there is no clarity on the applicability of GST on cryptocurrency, NFT, and other Virtual Digital Assets (VDA). Let us understand if GST is applicable to crypto as per the GST rules and regulations.
The GST Council is planning to levy a 28% GST on cryptocurrency and digital assets. This idea is to tax cryptocurrency just like income from lottery, betting, casinos, or horse racing.
What is a cryptocurrency or digital asset under GST Act?
The GST Act does not define cryptocurrency or digital assets. However, as per the Finance Bill 2022, a Virtual Digital Asset i.e. VDA means any information, code, number, or token generated through cryptographic means providing a digital representation of value exchanged and can be used in any financial transaction. Such assets can be stored or transferred electronically. VDA also includes a non-fungible token i.e. NFT and any other digital asset notified by the Central Government.
Is the sale of cryptocurrency taxable under GST?
Let us understand if VDA can be classified as a good or service based on the definition as per the GST Act.
Definition of Goods, Services, Money & Securities as per GST Act
As per Section 2(52), Goods mean any movable property except money and securities. The definition of Services means anything other than goods, money, and securities. However, services do include the conversion of money from one currency to another by charging a separate consideration such as brokerage, commission, or interest.
Money means a legal tender, foreign currency, cheque, electronic remittance, or any other instrument recognised by RBI to settle an obligation. Securities mean bonds, debentures, shares, derivatives, government securities, or instruments of similar nature.
Is cryptocurrency a good or service as per GST Act?
As per the above definition, Virtual Digital Assets (VDA) cannot be classified as money or securities. Further, it can also not be classified as Service as per GST Act. However, considering it as movable property, it can be classified as Goods as per GST.
Is the sale of crypto exempt under GST?
The list of exemptions under Schedule III of the GST Act does not cover the sale of cryptocurrency, NFT, or digital assets. Thus, it is not a transaction exempt from GST. Therefore, the sale of crypto, NFT, and VDA is taxable under the GST Act.
Is crypto exchange liable to pay GST on its services?
Yes. Services provided by crypto exchanges are taxable services under GST. Thus, the crypto exchanges are liable to collect GST from the traders and deposit the same with the GST department. GST is included in the trading fee that is added to the buying price of ether, bitcoin, ripple, etc. In the case of a crypto exchange located outside India, the place of supply of service is the location of the service recipient i.e India. Therefore, the service recipient i.e. crypto trader is liable to pay GST on a reverse charge basis.
Who needs to pay GST on supply of cryptocurrency and digital assets?
The seller of cryptocurrency or digital assets must collect GST from the buyer and deposit it with the government. There is no defined HSN Code and GST Rate for digital assets. Thus, HSN Code 960899 under the category ‘others’ with a tax rate of 18% can be used for reporting the sale of crypto.
The seller is liable to register under GST Act if the Aggregate Turnover exceeds the threshold limit of INR 40 lacs during the financial year. Once the seller of crypto registers under GST, they must collect and pay GST on each sale transaction.
The seller can claim Input Tax Credit of the following:
- GST paid on the purchase of cryptocurrency, NFT, VDA
- GST paid on services used for the business of crypto trading such as consultancy services, software expenses, broker commission, mining cost, etc
The GST department has not yet clarified the taxability of cryptocurrency and other digital assets. Crypto traders and crypto exchanges should comply with the existing GST provisions until the GST Council clarifies the taxability of cryptocurrency.
FAQs
Cryptocurrency falls under the definition of goods as per the GST Act. Thus, the sale of crypto is taxable under GST. Further, the sale of cryptocurrency or digital assets is not covered under the list of GST exemptions. Thus, GST is applicable to the sale of cryptocurrency in India.
Cryptocurrency trading i.e. sale of crypto is taxable under the GST Act since it is not specifically exempted from GST. Further, the crypto exchanges are liable to pay GST on their services. They include the GST in the trading fee charged to the crypto traders. Therefore, crypto traders are liable to pay GST on crypto trading.
The seller of cryptocurrency or digital assets must collect GST from the buyer and pay it to the government. The seller is liable to register under GST Act if the aggregate turnover exceeds the threshold limit of INR 40 lacs during the financial year. Once the seller of crypto registers under GST, they must collect and pay GST on each sale transaction. They can claim Input Tax Credit of GST paid on the purchase of crypto or other related services.
Hey @Rakesh_Sharma
There is ambiguity on how to tax cryptocurrency since the Govt doesn’t consider Cryptocurrency as a legal tender. There are 2 schools of thought that discuss can be taxed under Income from Other Sources or Capital gains.
To understand more about the taxability of Bitcoin, please refer to this article.
Hey,
If I buy crypto and sell within the same year, what kind tax will be applicable at what rate or is there no tax?
@Latesh_Bayad, there are two schools of thought for taxes on crypto, some believe it should be taxed as capital gains and others believe it should be considered as income from other sources.
If the cryptocurrency is held as an Investment and being exchanged for Fiat Money it may be treated as capital gains.
There are some articles which you might find useful
Hey @Shama,
The taxability of Cryptocurrencies arises under Income from Capital Gains if it is held as investment or trading. The cryptocurrency shall be considered as a Capital Asset and the taxability shall arise in the hands of person owning the same.
In Your case, since, Person A is owner of the cryptocurrencies; so any gains arising from sale of cryptocurrencies shall be taxable in the hands of Person A as the data/KYC registered with exchange is that of Person A. It shall make no difference if the proceeds are received in Joint Savings A/c which is held along with Person B.
Person B shall ignore the same proceeds in his ITR as Person A is paying the taxes in his ITR.
Hope it helps!
Budget 2022 brings taxes on Crypto, NFTs and other Virtual Digital Assets
Hi @Murali_Krishnan_S, if you are receiving profits in India then you will be taxed at 30% + 4% HEC and if you are receiving profits outside of India, then they are not taxable in India. You can also go through the blog attached below which will help you how the new budget affects you crypto trading and profits. Let me know if you need any further clarification.
Irrespective of my tax slab ; crypto is taxed @30% . ?
I mean if my income is zero and i made profit from crypto trading Rs. 1 lakh ; i pay tax 30,000/= ? Or i’ll get STGC excemption of 1 lakh ?
Or crypto is taxed 30% based on my tax slab ?
In this case ; if my income is 5 lakhs including 1 lakh income from crypto trading ; i declare crypto income in first slab which is taxfree upto 2.50 lakh !
What is the rule ?
Hi @HIREiN,
Unlike incomes such as salary, house property, capital gains from equity shares, mutual funds, ETFs etc. the basic exemption limit rule does not apply to income from Crypto, NFTs, and other virtual digital assets.
Meaning, that even if your total income is below the basic exemption limit you will have to pay tax on your earnings from crypto.
Hi @samben
You can reply to the notice from the Income tax department with help of our tax experts by booking a MEET.
Hi @Siddhartha_Das
You need not disclose the crypto holding in your ITR. Only when you have sold and hence have gains/loss you are required to disclose the same.