The government told parliament that trading profits from crypto investments and services through crypto exchanges will continue to be taxable, even though the Income Tax Act of 1961 and the Taxes on Goods and Services Regulations do not classify cryptocurrencies according to their respective regimes. The government’s clarification is in response to questions posed by Shiv Sena MP Priyanka Chaturvedi on March 23, 2021.
Because the gains from cryptocurrency investments are similar to the returns from investing in stocks, individual investors may be taxed by the income tax authorities, while crypto exchanges that offer a trading platform must pay GST. However, the government has no data on cryptocurrency earnings from Indian investors, nor data on the GST collections of crypto exchanges, Anurag Thakur, Minister of State for Finance, said in response.
Income tax liability on trading profits
Thakur said the 1961 Income Tax Act was designed to cover all income, whatever source it came from. Trade profits can therefore be taxed by the government.
“Regardless of the type of business, the existing statutory provisions on the scope of total income for taxation under Section 5 of the Income Tax Act 1961 provide that total income includes all income from any source, the legality of the income thus being without consequence. The profits from the transfer of cryptocurrencies / goods are taxable depending on the type of holding. No data on cryptocurrency income from Indians is stored, as the income tax return does not contain any provision for the recording of data on income from cryptocurrencies / assets. “- Anurag Thakur, Minister of State for Finance
GST liability for crypto exchanges
Since crypto exchanges facilitate trading and earn a fee from their investors, this income is taxable under the GST regime, as cryptocurrency companies as such are not exempt from the law.
“Unless expressly exempted, the provision of services is taxable under GST, and no services in connection with the exchange of cryptocurrencies have been exempted. Additionally, Service Accounting Code (SAC) are headings that broadly cover a range of economic activities and there is no specific SAC for cryptocurrencies. The GST collections specific to cryptocurrencies are not available. “- Anurag Thakur, Minister of State for Finance
At least five MPs have asked questions in recent months about the government’s proposed legislation banning trading, mining and investment in cryptocurrencies, including that of Chaturvedi. The government issued almost identical answers to two questions raised by Shiv Sena MP (February 2, 2021) and Sushil Kumar Modi, Bharatiya Janata MP (February 9, 2021).
Parimal Nathwani, YSR Congress Party ((March 23, 2021):: Asked the government about the dangers of investing in crypto and whether the government was taking steps to curb illicit crypto trading.
In response, Thakur said the Reserve Bank of India issued various public notices between December 2013 and December 2017 warning consumers about the various risks associated with virtual currencies, including bitcoins. He reiterated that the RBI had issued a circular in April 2018 preventing banks from dealing with crypto companies. That circular was overturned by the Supreme Court in March 2020, he said.
“A high-level inter-ministerial committee (IMC) formed under the chairmanship of the Secretary (Economy) to examine issues related to virtual currencies (VCs) and to propose specific actions on this matter that are recommended in his report that all private cryptocurrencies, with the exception of any state-issued cryptocurrency, are banned in India. The government would take a decision on the IMC’s recommendation and introduce the legislative proposal, if any, through due process in parliament. “- Anurag Thakur, Minister of State for Finance
Derek O’Brien, Trinamool Congress across India (March 23, 2021): Asked the government why it intends to enact the proposed crypto ban law and whether it has conducted primary or first hand research / stakeholder consultation.
In response, Thakur said that in the 2018-19 budget speech, the government stated that it “will not consider legal tender or coins for cryptocurrencies and will take all measures to discourage the use of these crypto-assets to fund, or as such, illegitimate activities to prevent part of the payment system. The government will proactively explore the use of block chain technology to usher in the digital economy. ”
He reiterated that the government had received a report from the inter-ministerial committee on the basis of which the proposed legislation would be adopted.
MediaNama has created a guide to cryptocurrency regulations in India, which outlines the position of the government over the past few years and various policy recommendations. Read it here: A complete overview of cryptocurrency regulation in India.