Frequently Asked Questions (FAQ) series is being prepared by the Department of Economic Affairs (DEA), RBI and Treasury Department about.
The government is working on a cryptocurrency taxation FAQ that will provide nuanced clarification on the applicability of income tax and GST to virtual digital assets, an official said.
The set of Frequently Asked Questions (FAQs) being prepared by the Department of Commerce (DEA), RBI and Treasury Department will also be reviewed by the Department of Justice, the official added.
Taxation of Cryptocurrencies and Virtual Digital Assets
“An FAQ on the taxation of cryptocurrencies and virtual digital assets is in preparation. Although the FAQs are for informational purposes and have no legal validity, the opinion of the Department of Justice is sought to ensure that there is no loophole,” the official told PTI.
The DEA, Revenue Department, and Reserve Bank are working to ensure that the tax aspect is clear to tax offices in the field and those dealing with cryptocurrencies and other virtual digital assets.
2022-23 clarified the collection of income tax on crypto-assets. From April 1, such transactions will be subject to 30% income tax plus duties and surcharges, as tax legislation treats profits from horse racing or other speculative transactions.
The 2022-23 budget also proposed a TDS (withholding tax) of 1% on virtual currency payments above Rs 10,000 per annum and the taxation of these gifts between May ns of the recipient.
The threshold limit for TDS would be Rs 50,000 per annum for certain persons including persons/HUF who are required to have their accounts audited under the Information Technology Act.
The 1% TDS provisions will come into force on July 1, 2022, while profits will be taxed from April 1. From a GST perspective, the FAQ should clearly state whether the cryptocurrency is a commodity or a service.
Currently, the 18% Goods and Services Tax (GST) is only levied on services provided by crypto exchanges and they are categorized as financial services.
The GST law does not clearly mention the classification of cryptocurrency. In the absence of a law regulating these virtual digital currencies, the classification must take into account that the legal framework qualifies them as “enforceable debt”.
An enforceable claim is a claim that can be exercised by a creditor for any type of claim other than a claim secured by a mortgage on real estate.
Separately, the government is working on legislation to regulate cryptocurrencies, but no drafts have been released yet.
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