The government may place the cryptocurrency bill before the Parliament during the winter session beginning later this month. One of the bills is titled ‘The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021’. Other instruments to be included in the bills are the virtual currencies and Non-fungible Tokens (NFT) from the blockchain ecosystem.
This bill aims to build a framework to facilitate the creation of an official digital currency by the Reserve Bank of India (RBI). With that, the bill prohibits the use of all private cryptocurrencies in India. But it allows specific exceptions to such a ban to promote underlying cryptocurrency technology and its services.
As per government sources, the new legislation is evolving at a good pace. The Standing Committee on Finance will have detailed discussions on cryptocurrencies, including their taxation, on 15th November 2021. These developments can be seen in the backdrop of increased promotions and advertisements on NFTs and cryptos in India. It is putting the government under immense pressure to pass relevant legislation sooner to protect end-consumer interests. These mainly include investors and traders, running into crores, as per recent reports by the CREBACO.
A government official further said that taxing these assets would not grant them legal cover but is needed to curb tax evasion and revenue loss. In other words, if the government decides not to legalise cryptocurrencies, provisions will be made to levy tax on them.
There is massive speculation about whether cryptocurrencies must be treated as currency or investment assets. Cryptocurrencies are more inclined towards investment assets than currencies by nature. The same government official has stated to a leading publication that the government issues fiat currency notes and coins usually backed by legal regulations.
These are also monitored closely by the RBI, which regulates currencies and banking products in the country. Whereas all the investment assets, such as commodity and equity, are controlled by India’s Securities and Exchange Board (SEBI).
Present laws do not exclusively provide any directions for its taxation. It means that the intention to tax its transactions must be called out in the legislation. If the bill gets passed, all necessary provisions will be added to the Finance Bill to facilitate the imposition of direct tax by February 2022. The GST Council must take a final call to levy GST on crypto transactions before that can happen.
If a person earns any income or makes a profit from the crypto trade, they can be taxed under the capital gains rules of the Income Tax Act. Likewise, suppose the crypto transaction contains service. The Goods and Services Tax (GST) needs to be levied in the current scenario.
Proposals will consider applying an 18% GST on service-oriented transactions in cryptos. These include supply, storage, trade, transfer, exchange, and management of these assets. The exchange platforms must charge and collect GST from end consumers who trade in these assets.
One must wait and watch closely for the developments in the coming weeks before making any crypto trading and investment moves.
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Annapoorna, popularly known as Anna, is an aspiring Chartered Accountant with a flair for GST. She spends most of her day Singing hymns to the tune of jee-es-tee! Well, not most of her day, just now and then.