Startup grouping IndiaTech writes to FM for clarity on crypto taxation

IndiaTech represents all the leading cryptocurrency exchanges, some of which
have come under the scanner for evading goods and services tax, as reported by ET. CoinSwitch Kuber, WazirX and CoinDCX, are members of the industry body.

In the letter, parts of which have been reviewed by ETtech, IndiaTech has appealed to the government to tweak existing tax laws to include crypto assets, and sought clarity on the method of taxation and their disclosures. The letter comes against the backdrop of a much delayed Cryptocurrency Bill 2021, which was to be introduced in the recently concluded winter session of the parliament.

“The budget should ideally offer coherent rules on direct taxation and the GST Council should detail the applicability of taxation, else there will be confusion,” Rameesh Kailasam, president and chief executive of IndiaTech, told ETtech. “Basically, the line of thinking is that we shouldn’t be waiting for a bill alone and the Budget should begin the process.”

The Directorate General of Goods and Services Tax Intelligence, a law enforcement agency under the Union Ministry of Finance, is scrutinising multiple crypto firms including Buyucoin and Unocoin for tax evasion. Last month, the GST department
slapped a Rs 40 crore demand on crypto exchange WazirX.

Industry members said crypto platforms have failed to cough up the precise amount of GST largely due to confusion over the tax applicable on different business models adopted. They also say they are unclear about “applicable provisions” under the country’s indirect tax laws.

IndiaTech has urged the finance minister to grant cryptocurrencies recognition as digital assets, and not currencies. Currently, there is no certainty as to how cryptocurrencies are taxed in India, mainly because of confusion on whether they should be treated as currencies, securities, or some other type of asset. Income tax on returns from various assets ranges from 10% to 35%. GST rates could also depend on how cryptocurrencies are categorised.

On January 4, ET reported that certain business models adopted by crypto selling platforms
are stoking greater regulatory scrutiny. For instance, platforms such as Unocoin and CoinSwitch Kuber also act as a broker or an aggregator and buy and sell cryptocurrency to users, in turn making profits on these trades.

IndiaTech has recommended that a flat 18% GST be levied only on the platform commission of the exchanges (brokerage or exchange fees per trade) and not the entire amount as it is done in the case of e-commerce transactions.

For direct taxation, the industry body has recommended enablement of provisions to recognise and treat it as income from capital gains or gains from business and profession, depending on the kind of business of the holder and the timelines and nature of holding.

Other recommendations include a disclosure requirement by individuals holding crypto assets at the end of the financial year, similar to disclosure requirements introduced by the Ministry of Corporate affairs for companies holding crypto assets. Also making Know Your Customer (KYC) norms mandatory, Indian ownership requirements for crypto exchanges, and giving authorised dealers status to exchanges importing crypto, have been suggested by IndiaTech.