India considering GST on cryptocurrency transactions amid evaluation of sector’s legality


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The Indian government is working on implementing a goods and services (GST) tax on cryptocurrency transactions as legwork for determining the legality of the sector is underway, according to a Sept. 19 Livemint report.

GST tax implementation

The GST tax will become an indirect tax regime on cryptocurrency assets that will act as a check on any revenue loss to the exchequer due to the lack of clarity surrounding the assets.

According to the report, the tax rate could fall between 18% to 28%.

At this stage, India’s finance ministry is working on determining the applicability of GST for cryptocurrency assets and has yet to decide whether they are declared as a good or service as the purchase is levied on services, Livemint’s two sources reported anonymously.

WazirX’s Vice President Rajgopal Menon said that based on the details available at the moment, “the GST will only be applicable on margin or service fees, and not on the entire value of the asset.”

It is also noted that the government is also looking into treating specific transactions, such as mining or airdropped cryptocurrency tokens.

The legality of cryptocurrency assets faces uncertainty in India

Meanwhile, the Indian government is also finalizing its stance on the legitimacy of cryptocurrency to submit its response to the Financial Action Task Force (FATF) “mutual evaluation” between February and March 2023.

India is currently not FATF-compliant. FATF requires countries to have a clear stance on legalizing, partially banning, or outright banning cryptocurrency assets.

The Department of Economic Affairs announced that it is compiling a consultation paper on virtual digital assets (VDAs) to assess the legality of VDAs. The consultation process began on Sept. 17.

The Financial Stability and Development Council (FSDC), chaired by Indian Finance Minister Nirmala Sitharaman, discussed the need to clarify the status of VDAs in India, along with a message to fast-track the initiative.

Sitharaman also called on the International Monetary Fund (IMF) to lead in developing a regulatory framework for cryptocurrencycurrency and ensuring a globally unified approach to the sector.

Nascent cryptocurrency regulations in India

On July 1, the one percent tax deductible source (TDS) rule for cryptocurrency transactions came into effect. The TDS mandates Indian citizens who are engaged in the sale of cryptocurrency assets like Bitcrypto, Ether, Tether, BNB, Shiba Inu, Solana, and others, to deduct one percent of the profits as income tax payable to the Income Tax Department of India.

At the 2022-2023 Union Budget, which took place in February, the Indian government defined cryptocurrencycurrencies as VDAs. The status of cryptocurrencycurrency hangs in the balance.



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