Bitcoin trade may attract I-T, GST; taxes to be paid in this fiscal year

Ahead of the cryptocurrency Bill, the government is likely to levy both income-tax (I-T) and goods and services tax (GST) on gains and trading of bitcoins or cryptocurrencies, said a senior finance ministry official privy to the development. A circular will be released soon, he added.

“Bitcoins will be categorised as financial services attracting 18 per cent GST on fee commission collected under this segment. Plus, tax (personal I-T) to be paid on the earnings from this,” clarified the official.

Sources say both taxes will be imposed for the current fiscal year as curb on crypto trade in India had been lifted by the Supreme Court (SC) in March 2020.

On taxing a banned item, the official cited the SC ruling saying the unregulated cryptocurrencies have not yet been banned and taxation rules are equal for all kind of services and commodities.  

Rest of the matter will be taken up by other agencies, as and when needed, he emphasised.

The Reserve Bank of India had virtually banned cryptocurrency trading in India and had directed that all entities regulated by it shall not deal in virtual currencies or provide services for facilitating any person or entity in dealing with or settling those.

Meanwhile, the government is fine-tuning the operationalisation part for banning private cryptocurrencies under a new legislation that will be sent to the Cabinet for approval soon.

The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021, or Crypto Bill, will specify  the kind cryptocurrencies the government is seeking a ban on, with clear definitions to plug any grey areas that could possibly arise due to the evolution of technology.

Besides, the Bill will give clear definitions to cover private cryptocurrencies to allay concerns associated with this.

The Department of Economic Affairs is holding consultations, and inputs will be incorporated in the Bill.

The bitcoin has seen a price surge. The recent trigger being Tesla, Inc.’s announcement of having bought $1.5 billion in bitcoin. 

Its endorsement of the cryptocurrency — allowing customers to pay for its electric vehicles with the bitcoin soon — is expected to sustain the rally. This is seen as a move that could expand the use of the most popular cryptocurrency for real world transactions.