The tax department is looking into how exchanges that allow commerce in India manage their cryptocurrency float, and if there is any item or transaction where Goods and Services Tax (GST) might apply, said people familiar with the development.
Currently, there are several exchanges operating in India, but only a few, mostly the big ones, tend to have real cryptocurrencies on their books to be bought or sold by Indian traders and investors. Some of the major exchanges also have holding entities outside of India that primarily hold a large portion of crypto assets.
These are then “transferred” to the Indian entity, before an Indian can purchase it. Some other exchanges tend to match exchanges between buyer and seller. In many cases, the buyer or seller is also based outside India, but the trade is done through the exchange.
In some cases, there are also transactions between two exchanges that are recorded as “transfer”, insiders say.
The tax authorities are considering whether these transactions involving exchanges could also attract additional GST.
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This comes about two months after the Directorate General of Intelligence GST (DGGI), the investigative arm of the Indirect Tax Service, conducted research and raids on several crypto exchanges and asked them to spit GST on their fees. of transaction or their margins.
Experts say the IRS position could mean that at least some of what exchanges provide can be categorized as services.
“Various exchanges have different mechanisms for procuring cryptocurrencies that are traded in India. The government could seek to define all transactions, even involving exchanges that may attract GST,” said Gaurav Mehta, founder of Catax, a cryptocurrency tax advisory firm.
Earlier in 2017, tax surveys were conducted in which senior executives and promoters of certain cryptocurrency exchanges were asked to explain their business model and the amount of indirect tax – either service tax, or value added tax – which may be levied.
The tax authorities wanted to understand how to tax scholarship income. The issue was not just sales tax and VAT, but also Goods and Services Tax, as to how bitcoins could be treated under the GST.
It also comes at a time when there is regulatory ambiguity around cryptocurrency.
The government is discussing with stakeholders whether cryptocurrencies should be completely banned or whether they should be allowed in a limited way where the Reserve Bank of India (RBI) will primarily regulate them, ET reported on Dec. 11.
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Crypto Transactions: Crypto Transactions Involving Indian And Foreign Currencies May Attract GST
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