The government informed Parliament that even though the Income Tax Act, 1961 and the Goods and Services Tax rules do not classify crypto-currencies under their respective regimes, trading gains from crypto investments and services by crypto-exchanges are still taxable. The government’s clarification is in response to questions raised by Priyanka Chaturvedi, Member of Parliament from the Shiv Sena on March 23, 2021.
Since the gains from crypto-currency investments are similar to returns from investing in stocks, individual investors can be taxed by the Income-Tax authorities, while crypto-exchanges that provide a trading platform can be liable to pay GST. However, the government has no data on crypto-currency earnings of Indian investors, nor any data on the GST collections from crypto-exchanges, Anurag Thakur, the Minister of State for Finance said in the response.
Income Tax liability on trading gains
Thakur said that the Income Tax Act, 1961 is meant to cover all incomes, from whatever source it is derived from. Therefore, any trading gains can be taxed by the government.
“Irrespective of the nature of business, the extant statutory provisions on scope of total income for taxation as per section 5 of the Income-tax Act, 1961 envisage that total income shall include all income from whatever source derived, the legality of income thus being of no consequence. The gains arising from the transfer of crypto currencies/assets is liable to tax under a head of income, depending upto the nature of holding of the same. No data is maintained on cryptocurrency earnings of Indians as there is no provision in the Income tax return to capture data on earnings arising from crypto currencies/assets”—Anurag Thakur, the Minister of State for Finance
GST liability on crypto-exchanges
Since crypto-exchanges facilitate a trade and earn a fee from its investors, this income is taxable under the GST regime since crypto-currency firms as such are not exempted from the law.
“Supply of any service, if not specifically exempted, is taxable under GST and no service related to cryptocurrency exchange has been exempted. Further, Service Accounting Code (SAC) are headings containing broadly a number of economic activities and there being no specific SAC for cryptocurrencies, the GST collections specific to cryptocurrencies are not available”—Anurag Thakur, the Minister of State for Finance
At least 5 Members of Parliament have raised questions in recent months on the government’s proposed legislation to ban crypto-currency trading, mining and investments, including the one by Chaturvedi. In the case of two questions—raised by Sanjay Raut, Member of Parliament from the Shiv Sena (February 2, 2021) and Sushil Kumar Modi, Member of Parliament from the Bharatiya Janata Party (February 9, 2021)—the government issued almost identical responses.
Parimal Nathwani, YSR Congress Party (March 23, 2021): Asked the government about the dangers of crypto-investing and if the government was taking any steps to curb illegal crypto trading.
In response, Thakur said that between December 2013 and December 2017 the Reserve Bank of India issued various public notices warning consumers on the various risks dealing with virtual currencies, including Bitcoins. He reiterated that the RBI issued a circular in April 2018, which curbed banks from dealing with crypto entities. This circular was overturned by the Supreme Court in March 2020, he said.
“A high level Inter-Ministerial Committee (IMC) constituted under the Chairmanship of Secretary (Economics Affairs) to study the issues related to virtual currencies (VCs) and propose specific actions to be taken in this matter recommended in its report that all private crypto currencies, except any cryptocurrency issued by the State, be prohibited in India. The Government would take a decision on the recommendation of the IMC and the legislative proposal, if any, would be introduced in the Parliament following due process”—Anurag Thakur, the Minister of State for Finance
Derek O’ Brien, All India Trinamool Congress (March 23, 2021): Asked the government on what grounds was it planning to introduce the proposed crypto-ban Bill, and if it had undertaken any primary or first-hand research/stakeholder consultation.
In response, Thakur said that the government in the Budget Speech for 2018-19 had said that it “does not consider crypto-currencies legal tender or coins and will take all measures to eliminate use of these crypto-assets in financing illegitimate activities or as part of the payment system. The Government will explore use of block chain technology proactively for ushering in digital economy.”
He reiterated that a Inter-Ministerial Committee report was submitted to the government, based on which it would frame the proposed legislation.
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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