Know what this means for investors

Cryptocurrency under GST: The government is working to bring cryptocurrencies under the Goods and Services Tax (GST) to tax the full value of transactions. Currently, cryptocurrency exchanges are taxed 18% GST on services provided to users under the category of financial services.

GST officers are of the opinion that cryptos by nature are similar to lottery, casinos, betting, gambling, horse racing, which have 28% GST on the total value. In addition, 3% GST is levied on the total value of the transaction in the case of gold.

“There is a clarification needed regarding the collection of GST on cryptocurrencies, and if it should be levied on the total value, we see if cryptocurrencies can be classified as goods or services and also remove any doubts as to whether they qualify as an actionable claim,” an official told PTI. Only once the classification is done will the GST rate on cryptocurrencies be decided.

What if the crypto is subject to GST?

If GST is levied on the total value of cryptocurrency transactions, the rate could be in the range of 0.1-1%, another official said. “The percentage of the tax, whether it is 0.1% or 1%, is always the subject of debate. First, a decision on the classification of the asset needs to be made, then the tariff will be discussed,” another official said.

Because there is no clear definition of cryptocurrency in the Goods and Services Tax (GST) Act and because there is no law governing these virtual digital currencies, the categorization must determine whether the legal framework qualifies it as an actionable claim. A legal action is what a creditor can do for any kind of debt that is not secured by a mortgage on real property.

The loss of one crypto asset cannot be compensated by another

In the Union Budget 2022-23, the government proposed that the transfer of any virtual asset/cryptocurrency be taxed at 30%. No deduction, except for the cost of acquisition, will be allowed and no transaction loss can be carried forward.

Now, in a big shake-up for the crypto industry, the government clarified on Monday that under the 2022 budget proposals, investors will not be allowed to offset losses from one crypto asset against another. In addition, mining infrastructure cannot be deducted as an acquisition cost.

Along with the 30% tax, the Union Budget 2022-23 also proposed a 1% TDS on the transfer of such assets. Tax experts were divided on whether investors could offset losses from a crypto with another crypto asset. Loss compensation consists of adjusting the losses against the profit or income of that particular year. This provision is available in equity investments.

Minister of State for Finance, Pankaj Chaudhary, advised Lok Sabha on Monday: “In accordance with the provisions of proposed Section 115BBH of the Income Tax Act 1961 (the Act), the loss resulting from the transfer of VDA will not be able to be compensated by income from the transfer of another VDA.” He was responding to questions raised by Lok Sabha member Karti Chidambaram on the status of the cryptocurrency.

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