BITCOIN TAXABILITY UNDER GST ACT, 2017
APPLICATION OF GST ACT
Under GST Act, 2017, GST is charged on the supplies related to goods or services or both made for consideration and is in the course or furtherance of business. Therefore, in case the transaction involving Bitcoin comes under the definition of supply, then GST would be applicable.
As per sec 2(52) of CGST Act, 2017, goods mean all the types of movable property including actional claims, growing crops, and things attached to the earth, but exclude money and securities. Also, as per sec 2(75) of CGST Act, 2017, money is the legal tender of India and includes foreign currency, promissory notes, bill of exchange, etc., when used in the course or furtherance of business in order to settle an obligation.
RBI on Bitcoin as a legal form of currency
Since, RBI till now, does not consider Bitcoin as a legal form of currency, it is very much clear that Bitcoin cannot be considered as money, as there is no legal status. Also looking into the definition of securities i.e.
- Shares, scrips, stocks, bonds, debentures, stocks, and other securities of any incorporated company or other body corporate.
- The derivative traded in India in terms of Securities recognized in India.
- Units issued by any collective investment scheme to an investor for investing in any of their schemes.
- Security as mentioned in section 2(zg) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.
- Units or any other such instrument received by an investor by investing in any mutual fund scheme.
- Any other instruments are declared as securities by the Central Government.
- Securities issued by the Government of India.
- Any rights or interest passed in securities.
Herein, we can very well see that Bitcoin does not fall into any of the above types of securities, thus, we cannot term Bitcoin as a security.
The last aspect for Bitcoin to be taxed under GST lies with the service section. As per sec 2(102) of CGST Act, 2017, service means anything other than goods and includes activities related to the use of money and securities and the conversion of money for which a consideration is charged.
Key findings for GST Application on Bitcoin
- Bitcoin mining is treated as a supply of service as it is generating cryptocurrency and involves transaction fees and charges. GST would be collected from the person undertaking the transaction or the miner on transaction fees or rewards. Just like other services if the value of the reward or fees collected exceeds Rs. 20 lakhs, such individual is required to take registration under Goods and Services Tax (GST).
- Another finding was that since these cryptocurrencies are stored in digital wallets, the digital wallet service providers compulsorily be required to register under GST.
- The Cryptocurrency exchanges providing the people with Indian rupees in exchange for cryptocurrency be also required to register under GST and shall pay GST on the charges and fees collected by them for providing the exchange service.
- Such transactions involving cryptocurrency be taxed @ 18 percent GST.
- Since cryptocurrency does not comes under the definition of money and securities, thus, buying and selling of cryptocurrencies will be considered as supply of goods. Also, the activities which facilitate such transactions will be counted under services and these would include supply, transfer, storage, accounting, among others.
- Value of such cryptocurrency transactions is determined in Indian rupees or in any other freely convertible foreign currency.
- In the transaction where both buyer and seller are in India, the buyer’s location will be the place of supply, and such transaction is termed as the supply of software.
- Such case where the transaction involves the transfer and sale of cryptocurrency, the location of the registered person will be the place of supply. And in case, the recipient is not registered, the location of the supplier be the place of supply.
- Also, where the transaction takes place beyond the two states or is beyond the Indian territory, IGST would be applicable on such transactions.
- From the above findings, it is observed that cryptocurrency though is considered as goods under the GST Act, 2017, most of the transactions involving cryptocurrency, on which GST is applicable relates to exchange services instead of goods.
- GST on Bitcoin is now possible and every person trading in them be responsible for properly complying with the applicable provisions of GST that includes getting registered and paying tax under GST Act.
- However, across other counties, it is seen that either Bitcoin is given the status of legal tender or of a property in their country and is exempt from other indirect taxes while undertaking the transactions involving Bitcoin.
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