Central Board of Indirect Taxes and Customs (CBIC) has sought detailed information about the cryptocurrency trade value chain so that different activities can be classified accurately and taxed accordingly. The tax department has asked crypto exchanges to provide briefs on how tokens, their valuation, and divisibility work. The information has to be provided within this month itself.
Central tax departments don’t thoroughly understand how digital exchanges work or transactions take place. So, they don’t know how to tax gains in the digital asset’s value chain.
CBIC has asked for the exchanges to provide the details within a month. As reported, the central tax department is planning to reconsider the GST slab for crypto exchanges. They are now under the financial services category and are taxed at 18%.
Reports suggested that CBIC planned to subject crypto activities to the highest 28% GST. That would put cryptocurrencies in the same group as betting, racing, and lotteries – non-essential luxury goods and services.
“We had meetings with crypto exchanges on wide-ranging issues relating to the asset class. We have sought a detailed report on different crypto products being traded, their respective transaction fees, and how they are getting calculated,” a senior CBIC official told Business Standard.
India has been at the crossroads of the emerging crypto trade. While the Reserve Bank of India (RBI) and the central government have been putting up roadblocks to stop digital assets from becoming popular or mainstreamed, crypto adoption has continued to grow. Now, studies suggest that crypto adoption in India is at 7% while a Chainalysis report puts India in the 4th position in grassroots crypto adoption.
Despite the rising popularity of digital assets, India has not enacted any legislation to regulate the cryptocurrency trade or adoption. It has been pitching for a uniform global regulatory framework for the sector.
Meanwhile, the government has introduced a 1% transaction tax and 30% capital gains tax with effect from the current financial year. These exorbitant tax rates have driven away investors, bringing the volume down by over 90% on all major Indian crypto exchanges.
When the 1% transaction tax kicked in, there were uncertainties as to who will pay the transaction tax – the seller, the exchange, or the buyer? Now, it’s settled that the buyer will pay the transaction tax.
But exchanges that earn a certain percentage of the transaction value as its fees were still to be taxed for their profit. The CBIC is trying to tax the profits earned by the exchanges through its latest move, where it wants to classify different activities for taxation under GST.