Crypto tax: Payments received in cryptocurrencies set to face GST complications

Individuals who had provided services to clients outside India and were paid in cryptocurrencies are rushing to their tax advisors seeking clarity over applicability of the goods and services tax (GST). Many individuals have claimed that they got paid in cryptocurrency after they did some work such as graphic designing or advisory for clients based in the US or Singapore.

The question is whether this is supply of services or an export, and what is the GST applicable on it.

After this year’s government announcement of taxing crypto assets, many individuals have disclosed their income from cryptocurrencies and claimed that this was payment for some work they did during the year.

While the direct tax rules are simple and 30% tax will be applicable on these, a new complication in the form of GST has emerged, say tax experts.

How much GST is applicable on these transactions or for that matter whether these transactions can be considered above board is still unclear.

“Receipt of consideration in the form of cryptocurrencies may not be equivalent to receipt of money in convertible foreign exchange and hence any export benefit by the Indian exporter would have a direct impact. The RBI guidelines had earlier equated even receipt of money in Indian rupee to be equivalent to the foreign exchange and it will need to be seen how clarification addresses the issue,” said Abhishek A Rastogi, partner at law firm Khaitan and Co.

Take the example of a New Delhi-based resident who has approached his tax advisor and claimed that he provided graphic designing services to a company based in Singapore.

He claimed that the company paid Rs 75 lakh for several assignments during the year in cryptocurrencies.

The tax experts are now in a dilemma.

“There is no clarity on GST rate applicable as the question is whether there is any supply of services happening in the first place. Secondly, all the cryptocurrency transactions between such taxpayers and the companies that are paying have to be cross verified to make sure that this is not a conduit for anything that’s disallowed under Indian legal system,” said Gaurav Mehta, founder of Catax, a cryptocurrency tax consultancy firm.

Insiders tell ET that the government could be looking to come out with clarity on the GST applicable on such transactions.

Some senior government officials had reached out to well known cryptocurrency tax advisors in this regard and sought suggestions only two weeks back.

The finance minister had in February introduced a 30% income tax on returns from digital currencies.

The government also introduced a 1% TDS on digital assets. The government has, however, not used the word ‘cryptocurrency’ in the guidelines announced in the budget but virtual digital assets.

The government has now even provided additional clarifications that profit and loss across crypto assets will be disallowed.

Tax on cryptocurrencies or virtual digital assets announced on Tuesday is set to create more problems for investors as they will now have to not just cough up additional taxes but may not be able to set off losses from such coins against returns, ET first wrote on February 3.

So the question is this: If an investor made Rs 1 lakh from Bitcoin trading but lost Rs 1 lakh from Ethereum trading, what would be the taxation?

Many tax experts claim that in such a situation, the tax will be Rs 30,000—at 30%—and investors will not be able to set off losses from Ethereum trading, ET wrote. The latest clarification seems to have confirmed this hypothesis.






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