Cryptocurrency exchanges may be classified as e-commerce platforms

Crypto exchanges proposed to be classified into 3 categories; may have to register under GST

The government is looking at classifying cryptocurrency exchanges as e-commerce platforms and imposing 1 per cent tax collected at source on them under the goods and services tax (GST) regime. The planned move is aimed at monitoring virtual currency transactions if the government decides to regulate the space.

Cryptocurrency exchanges have been proposed to be classified into three categories: Those that act as a facilitator, brokerages that allow buying and selling, and trading platforms that provide an interface for trading. These may have to be registered under GST and collect TCS from those buying and selling cryptocurrencies through their platforms.

The present taxation regime, both direct and indirect, provides for an appropriate classification of such assets, officials have deliberated. The sale, purchase, mining and exchange of cryptocurrencies are likely to be taxed from 2017 using data from the Income-Tax (I-T) department as well as sourcing information through exchanges.

Discussions at the finance ministry have included imposing GST on the purchase, sale, exchange, transfer, supply and storage of cryptocurrencies at 18 per cent, which would have to be collected from investors.

The tax collected at source (TCS), deducted by cryptocurrency platforms, can be set off against investors’ tax liability. The TCS provisions were introduced under the GST regime as a means to improve compliance among sellers on e-commerce platforms. The same principle is being explored to be used for keeping a check on cryptocurrency platforms.

The deliberations have also included treating cross-border trade of cryptocurrencies as export and import of services. In case of the evolving use of blockchain technology in several sectors, it must be treated as an export, and the tax rate can be brought down gradually learning from the experience from certain other countries, an official said.

If transactions in virtual currencies, along with other business income that attracts GST, are above Rs 20 lakh, then an 18 per cent GST rate would be applicable. These issues will be further streamlined once the plan is finalised. However, if the transactions are cross-border in nature, then the Rs 20 lakh threshold will not apply as IGST provisions do not provide for any such ceiling.

Cryptocurrency transactions are not different from any other supplies, and would be governed by provisions related to the threshold limit for registration for applicability of GST, it has been discussed. A draft plan on taxation has also been readied by the Department of Revenue.

In case of transactions undertaken in a foreign currency, conversion in accordance with the prevailing exchange rate would be used to compute the value of trade, and in case of a barter transaction, GST will have to be paid by both parties involved.

Such a plan is being considered as the finance ministry is grappling to impose an outright ban on cryptocurrencies due to enforcement-related issues on peer-to-peer trade and cross-border transactions, it is learnt.

Also, an exit window for investors would have to be created in case of an outright ban. This will have to provide a legal framework to tax the current and dated transactions, according to the ministry’s internal discussions. Since a framework will anyway have to be provided to investors, this can be extended by classifying them as intangible assets, and regulating them with appropriate disclosures, the ministry is learnt to have discussed.