The Goods and Services Tax (GST) Council may now include cryptocurrencies and related services in the 28 percent tax bracket, and the crypto industry is looking for a meeting with the government.The government had already put a 30% tax on gains from crypto assets and a 1% TDS tax on transactions.
Since April 1, when the income tax went into effect, there has been a big drop in the number of transactions in the industry. The possibility of a higher GST rate is likely to hurt the industry even more.
Moneycontrol has talked to people in the industry and found out that exchanges are worried about what this could mean for the future of trading cryptocurrencies in India.
“We are obviously unhappy with this line of thought. If they take such a position, things will become extremely difficult. No nation has taken this stance, and the upcoming TDS is already difficult. Frankly, we have no idea what their reasoning is; do they want to ban it without actually banging it? A member of the industry who wished to remain anonymous stated, “We have no idea.”
He added that the industry hopes to negotiate with the government.
Idealistically, we would want face-to-face time with the government for such a matter. On the one hand, we’ve heard that the government will take its time, while on the other hand, we’ve heard that it may soon regulate the industry. These are contradictory signals, said the individual.
Akshay Aggarwal, a venture partner at Draper Dragon Fund, thinks that the proposed measures will make it worse for crypto exchanges and talented people to leave India.
“In addition to retail investors, it would also affect algorithm-based algo crypto traders.” Even though trading volumes will be affected, these exchanges are registered outside of India and will enter other markets, he said.
The possibility of a 28 percent GST rate on cryptocurrencies was first reported by CNBC-TV18.Cryptocurrency exchanges currently pay 18% GST on the services they provide.Even though the next GST Council meeting hasn’t been set yet, experts think that a decision will be made soon.
“Now that a 30 percent tax rate and 1 percent TDS have been announced for income tax, the next major announcement will be the GST rate and how it will be treated.” Rashmi Deshpande, a partner at the corporate law firm Business Law Chamber, said that the definition of VDAs (virtual digital assets) is likely to be the same as that of IT regulations.
“Bearing in mind the high rate of income tax, it would be reasonable to expect a fair rate for the Goods and Services Tax (GST) to ensure that not only the government receives its revenue, but also the industry survives.” It remains to be seen whether the government devises a different set of rules for crypto assets, such as a valuation mechanism, “she added.
More importantly, the industry is still dealing with a lack of clarity regarding multiple income tax-related factors. Customers and exchanges will be even more confused if a new mandate is given out before the questions that have already been asked have been answered.
The government should have clarified the industry before imposing taxes and the Goods and Services Tax. Customers will now bear the majority of the 28 percent GST, making it difficult for them to conduct business.Also, how will an investor who transacts using an international wallet pay the GST? ” The founder of the crypto education platform Bitinning, Kashif Raza, stated this.
The 1% TDS is also seen as onerous, discouraging customers and generating massive amounts of additional paperwork for the government.
Some banks, including Kotak Mahindra Bank, have withdrawn support for cryptocurrency exchanges over the past month, resulting in fewer payment options on platforms. This domino effect ensued after US cryptocurrency exchange Coinbase was forced to delay implementing the Unified Payments Interface (UPI) on its platform.
According to Moneycontrol, the move by banks and the National Payments Corporation of India, which operates UPI, was more of a reaction to Coinbase’s extremely public announcement.
However, it is the GST tax that has players most concerned. Sathvik Vishwanath, founder and CEO of cryptocurrency exchange Unocoin, stated, “A 28 percent GST will cause significant industry disruption.” “Income tax is levied only on the profit, but GST could be levied on the entire transaction amount, which would be astronomical.”
For Edul Patel, co-founder of the cryptocurrency investment platform Mudrex, the exchange rate is of little concern.
“We already pay 18 percent GST, so a 28 percent increase will be insignificant.” Furthermore, the government’s 30% income tax and TDS make it abundantly clear that it does not want to encourage trading. This is an additional step in that direction. “
Since the government and the Reserve Bank of India are still worried that cryptocurrencies are not covered by the Prevention of Money Laundering Act and the Foreign Exchange Management Act and can therefore be used to fund illegal activities and wash money, the industry may not find a welcoming audience.