The Government of India is contemplating levying Goods and Services Tax (GST) on Crypto Exchanges in India on the procurement of Crypto assets from those outside the country.
As per the report, the tax department is currently scrutinising how exchanges that allow trading in India manage their cryptocurrency float and whether there is any element or any transaction where GST could apply.
Why is the government eager to levy tax on exchanges?
Only the big crypto exchanges in India have actual cryptocurrencies on their books. In contrast, most others buy from foreign entities that primarily hold a large chunk of cryptocurrencies.
Hence, such crypto exchanges that depend on foreign entities get these digital assets transferred to their accounts before offering them to traders and investors.
Some other exchanges tend to match trades between buyer and seller, while either the buyer or seller is based outside of India.
Lastly, many crypto exchanges that fall short of assets exchange crypto assets individually and record such transactions as transfers.
Therefore, the tax department is considering putting such transactions under GST.
“Various exchanges have different mechanisms to procure cryptocurrencies that are traded in India. So the government could look to define all the transactions even involving exchanges that could attract GST,” said Gaurav Mehta, founder of Catax, a cryptocurrency tax consultancy firm.
In a similar pattern, in 2017, the government had investigated top executives and promotors of crypto exchanges on their business model. The authorities wanted to understand how to tax the revenues from the exchanges.
This development also comes when there is regulatory ambiguity around cryptocurrency. The government had levied a 30 per cent tax on gains from selling cryptocurrencies and one per cent TDS on every transaction.
Hence, the government has been scrutinising whether to regulate these digital currencies and develop a regulatory framework over the past years.
