Which crypto tax will govt levy on you, GST or direct?
While the much-anticipated cryptocurrency bill has been a hot subject among traders and investors in India, there is still some uncertainty about how the government will tax the gains.
So far, the government has not issued any formal notification clarifying whether cryptocurrencies are subject to GST or direct tax. However, according to our research, they are taxable under direct taxes. Let's take a closer look at both the taxes separately to have a better idea.
GST is a single tax that solely applies to the supply of goods and services. And if cryptocurrencies are to be taxed under GST, the government will have to classify them as intangible assets, which requires everyone to record them as their business income. Moreover, there will be no short-term or long-term capital gains because the tax rate will be the same. Apart from this, the classification of Bitcoin as goods will imply the supply of cryptocurrency is a taxable supply which is debatable because GST is paid many times on the supply of goods and then on the consideration, resulting in a higher tax rate.
Direct taxes are levied on individuals and companies by the country's supreme tax body, and taxpayers directly pay it to the government of India. Talking about cryptocurrency, it's a capital asset that will be subject to capital gain tax, which is a kind of direct tax levied on profits made from the sale of assets or investments, whether held for a long or short period.
One unanswered question is the asset's holding period, whether the gain is long or short term. If a cryptocurrency is kept for more than 36 months from the date of purchase, it is considered as long-term capital gain and will be taxed at 20% with indexation. And if it is kept for less than 36 months from the date of purchase, it will be considered as a short-term capital gain.
However, taxing cryptocurrency as GST will raise several issues, such as an Indian company making international crypto transactions considered an import and export of goods.
As of now, the government has not published any formal statement or notification regarding cryptocurrency regulation, and with such limited information, it would be unfair to draw any conclusions. The next budget on February 1st, 2022 will answer all questions related to cryptocurrency regulation. One thing is for sure that cryptos will be taxable soon because they are a source of revenue for the government, and they will not miss any opportunity to grab it.