Impasse on GST levy for cryptocurrency & virtual digital assets still continues

This is the second time that tax authorities are finding it difficult to finalise a proposal for the GST Council.

Currently, the industry is paying an 18% GST on the platform fee for providing the service to customers to transact, and no GST is charged on the value of the cryptocurrency/virtual digital asset/tokens.

The council had asked tax officers to assess whether cryptocurrency or virtual digital assets are actionable claims and should attract 28% GST, in addition to 18% GST on transaction fees.

In the previous instance, a panel of Karnataka and Haryana state officers was set up and tasked to come up with a proposal at the June 2022 Chandigarh GST Council.

However, after more than a year of being set up, in the October GST meeting, the council was informed by the panel of Karnataka and Haryana state GST officers about the inability to submit a report.

Meanwhile, watching this space closely, experts feel that a well-balanced clarity with specific scenarios should be the government's effort while putting in place a proper policy for the sector.

Anita Rastogi, Indirect Tax partner at PWC, says, “New-age sectors such as Cryptocurrencies & Virtual Digital Assets need a detailed understanding of minute transaction-level scenarios to accurately comprehend GST impact. This can be efficiently achieved by involving trade and industry stakeholders and experts. In a dynamic and fast-evolving environment, both the above aspects may allow for a comprehensive and feasible taxation system surrounding Cryptocurrencies & Virtual Digital Assets. Efforts should be made to avoid half-baked or premature conceptualizations for the same.”

While suggesting a possible solution, Abhishek A Rastogi, founder of Rastogi Chambers, says, “The complexity to tax such transactions arises as the supplies in these cases could be B2B, B2C, and C2C with a very high possibility that there will not be any tax compliance with respect to C2C transactions. The solution could be to tax the transactions under the reverse charge mechanism on the margin of the asset. By taxing under the reverse charge on the margin, various aspects such as revenue leakage, breaking of credit chain, and compliance burden will be addressed. This will also ensure that the supply is charged only at the value addition, thereby ensuring no tax cascading.”

Amit Maheshwari, Tax Partner, AKM Global, a tax and consulting firm, states, “The Indian cryptocurrency ecosystem is at a crossroads, with the regulatory framework still in flux. As the country seeks to balance innovation with fiscal responsibility, the need for a cohesive and forward-looking tax policy has never been more critical. The absence of a specific HSN code and rate for these digital assets further complicates the situation, with the current general category rate serving only as a temporary measure. As the industry grapples with increasing scrutiny from the GST department, the need for definitive guidelines is more pressing than ever. As stakeholders navigate this uncertain terrain, upcoming GST Council meetings are poised to play a pivotal role in shaping the tax framework for this burgeoning asset class, balancing innovation with fiscal prudence.”

Expressing similar sentiments, Abhishek Jain, Partner and National Head for Indirect Tax at KPMG, says, “Taxation of cryptocurrency and virtual digital assets is a complex one with there being diverse nature of such transactions. Issues including the nature of supplies being goods or services, rate of GST, place of supply, exemptions, etc., would need explicit clarity from the Government to avoid unwarranted disputes in this evolving space.”

To be seen is what exactly comes out of these discussions and what the final contours of the policy cleared by the GST Council are.