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New Delhi: The government is working on a FAQ on taxation on cryptocurrencies, which will give a nuanced clarification on the applicability of income tax and GST on virtual digital assets, an official said. The official said the set of frequently asked questions (FAQs), which are being prepared by the Department of Economic Affairs (DEA), RBI and the Department of Revenue, will also be reviewed by the Law Ministry. The official told the media, “Frequently Asked Questions on Taxation on Cryptocurrencies and Virtual Digital Assets is in the works. Though the FAQs are for informational purposes and have no legal validity, the opinion of the Law Ministry is being sought to ensure that there are no loopholes.

The DEA, the Department of Revenue and the Reserve Bank are working to ensure that the taxation aspect is clear to field tax offices as well as those dealing with cryptocurrencies and other virtual digital assets. The Budget for 2022-23 has brought clarity regarding the imposition of income tax on crypto assets. From April 1, 30 per cent income tax and cess and surcharge will be levied on such transactions in the same manner as the tax law treats winnings from horse racing or other speculative transactions. Budget 2022-23 also proposes 1 per cent TDS (tax deducted at source) on payment of virtual currencies exceeding Rs 10,000 in a year and taxation of such gifts in the hands of the recipient.

The TDS limit will be Rs 50,000 per annum for specified individuals, which includes individuals/HUFs who are required to get their accounts audited under the IT Act. The provisions relating to 1 per cent TDS will come into effect from July 1, 2022, while the gains will be taxed from April 1. From a GST perspective, the FAQ is likely to provide clarity on whether cryptocurrency is a goods or a service. Currently, 18 percent Goods and Services Tax (GST) is levied only on service provided by crypto exchanges and is classified as financial services. The classification of cryptocurrencies is not clearly mentioned in the GST law. In the absence of legislation regulating such virtual digital currencies, the classification has to take into account whether the legal framework classifies this as an ‘actionable claim’.

 

An actionable claim is a claim that can be made by a creditor for any type of debt other than a loan secured by mortgage of immovable property. Separately, the government is working on a law to regulate cryptocurrencies, but no draft has been publicly released yet.

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