Govt likely to propose 18% GST on crypto mining, trading entities

The Centre will take a proposal to the Goods and Services Tax Council (GST Council) to levy GST on entities that provide a mining platform for cryptocurrency assets and those who use virtual digital assets as a medium of exchange in purchases.

While the Central Board of Indirect Taxes and Customs (CBIC) is examining the matter, its Chairman Vivek Johri told Business Standard the proposal could be to tax these at the top bracket of 18 per cent.

At 18 per cent, these entities would be paying GST at the same rate as the one on commissions earned by cryptocurrency exchanges. Johri said the CBIC would finish its internal assessment within a month, then take it to the GST Law Committee, and subsequently to the Council itself, where the final decision rests.

“If I am supplying or buying crypto assets or mining using crypto currency or using a medium of exchange to pay for goods or services, how is that to be treated under GST? That needs some more deliberation and examination. We hope to complete that examination in about a month’s time,” Johri said.

When asked what rates could be applicable to such services and transactions, the CBIC chairman said: “It is a little hypothetical. But if it’s a service, if these transactions are treated as provisioning of IT services, then the normal tax bracket is 18 per cent.”

Though the date for the next GST Council meeting has not been set, it could happen in March.

“There are aspects of cryptocurrency transactions where the applicability of GST is eminently clear. Exchanges are a good example. So the exchange operators providing a service to anybody who’s indulging in the supply or purchase of crypto, and that is taxable. We have been recovering that tax. The identity of many of these exchanges is known to us. They’ve been paying on the commission that they charge,” Johri said.

Whenever the issue is brought up for the GST Council’s consideration, it will clarify the indirect tax treatment of the fast-expanding sector. Union Finance Minister Nirmala Sitharaman, in her Budget 2022 speech, had clarified the direct tax provisions.

Sitharaman had said trading in virtual digital assets, which includes crypto assets, would attract a 30 per cent tax on profits earned and a 1 per cent tax deducted at source. She also said no deduction in respect of expenditure or allowance — except the cost of acquisition —would be permitted while computing such income. And the loss from transfers of such assets cannot be set off against any other income.

By the government’s admission, this is the first time that the tax department has been tasked with taxing a sector whose regulations are still awaited. Sitharaman made it clear that taxation did not mean legitimacy. That legality will come from the long-awaited Crypto­currency Bill, which is yet to be tabled in Parliament.

While the draft Bill in its earlier avatar recommended a ban on even trading in such assets, the current view in the government is that it can be allowed as a heavily regulated and taxed activity.

Reserve Bank of India (RBI) Deputy Governor T Rabi Sankar earlier this week said crypto assets should be banned. The Bill is delayed because the government believes regulating this emerging sector cannot be done by one country alone and will require a multi-national effort.

Crypto regulations will be discussed at the G-20 meeting of finance ministers and central bank chiefs later this month. Sitharaman and RBI Governor Shaktikanta Das are expected to attend it. The matter is likely to be discussed also at the World Bank-International Mone­tary Fund spring meeting in April.