The government will levy Income Tax and Goods and Services Tax (GST) on commissions and trading gains made from trading Bitcoins and other crypto-currencies, the Business Standard reported. While the government plans to ban crypto-currency activity in the country, the decision to tax both crypto-exchanges and crypto-investors is an indication that existing investors and crypto-firms are not going to left out to dry and that there will be a moratorium period for both sets of stakeholders to declare and square their holding.
MediaNama had earlier reported that the government plans to give existing investors a window of three to six months to square their holdings, as part of the Crypto Bill which is being worked on and will be sent to the Cabinet soon for approval.
While the central government plans to bring legislation to ban ‘private’ crypto-currency activity in the country and create a digital currency, it plans to issue a circular wherein commissions earned by exchanges, for instance, will attract a 18% GST taxation rate, the report said citing an unnamed government official. Further, crypto-investors will need to declare the gains they made as part of their personal income-tax filings, the official said. Both taxes will be levied for the current financial year, the report said.
‘Ban’ or not?
Three weeks ago, the government announced that it would introduce The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021, which will ban “private” crypto-currencies while at the same time providing the RBI with the requisite legal powers to develop a central bank-backed digital currency (CBDC), according to an official Lok Sabha Bulletin Part II for the Budget Session 2021 of Parliament. While the government wants to promote the use of blockchain across various use-cases, it has decided to enter the global race of creating a Central Bank Digital Currency (CBDC) while at the same time banning “private” crypto-currencies. This is similar to the model pursued in China.
The fact that the government will give tax authorities the power to levy tax on crypto-exchanges and crypto-investors effectively gives crypto-currency activity in the country a legal status, even if the proposed bill intends to ban ‘private’ crypto-currency activity.
Ever since the Supreme Court overturned the Reserve Bank of India’s April 2018 circular, barring banks from engaging with crypto-firms and investors, in March 2020 the government has made several proposals to tax crypto-trading. The domestic crypto-industry has also consistently been seeking clarity from the Income Tax department and GST authority on the tax liability for exchanges and investors.
MediaNama has prepared a guide on crypto-currency regulations in India, listing the government’s position over the last few years and various policy recommendations; read it here: A complete low-down on crypto-currency regulation in India.
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