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The government is working on categorizing cryptocurrencies under the GST statute.

  1. Currently, 18 percent of GST is paid solely on crypto exchange services, classified as financial services.
  2. GST officials believe that cryptos, by definition, are akin to the lottery, casinos, betting, gambling, and horse racing, all of which are subject to a 28 percent GST on the total value.

The Centre contemplates categorizing cryptocurrencies under the GST rules so that tax may be charged on the whole transaction amount. At the moment, an 18 % Goods and Services Tax (GST) is charged exclusively on services supplied by cryptocurrency exchanges, which are classified as financial services.

According to GST officials, cryptocurrencies are akin to casinos, gambling, and betting, which carry a 28 % GST on the full value. Furthermore, in the event of gold, a 3% GST is paid on the whole transaction amount.

Another GST official stated that if GST is applied on all cryptocurrency transactions, the rate will be 0.1-1 percent. However, the ‘classification’ choice must be finalized first, and the rate will be addressed.

The GST has not drawn a clear distinction between cryptocurrencies and fiat cash. In the absence of legislation governing such virtual digital currency, the categorization must consider whether the law considers it an actionable claim.

An actionable claim is one that a creditor can make for a debt other than one secured by a mortgage on immovable property.

The 2022-23 Budget clarified the imposition of income tax on crypto assets. From April 1, such transactions will be subject to a 30 percent I-T plus cess and surcharges, just as gambling, lottery, and other speculative transactions are.

Budget 2022-23 also suggested a 1% TDS on payments towards virtual currencies exceeding $10,000 per year and taxes on such presents in the hands of the receiver. The TDS threshold limit would be $50,000 per year for designated persons, including individuals/HUFs required to have their accounts audited under the I-T Act.

The regulations relating to 1% TDS will go into effect on July 1, 2022, whereas the gains will be taxed on April 1.

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