After detecting significant amount of Goods and Services Tax (GST) evasion by cryptocurrency exchange WazirX, other crypto exchanges and major investors in digital currencies are under the lens of multiple agencies , the income-tax department, the Directorate General of GST Intelligence (DGGI), and the Enforcement Directorate (ED), two officials aware of the development said.
Law enforcement agencies are analysing data pertaining to business activities of cryptocurrency exchanges and investors in crypto assets, the officials said on condition of anonymity.
“It is a lame excuse that entities involved in GST or IT evasions are not aware of tax laws merely because cryptocurrency or virtual currency activities are unregulated. There is no ambiguity in law. Transactions of all goods and services attract GST and all income is taxable, unless exempted explicitly,” one of the officials said.
Clarifying applicability of tax on cryptocurrencies, finance minister Nirmala Sitharaman on November 30, 2021 told the Rajya Sabha: “No separate section or provision in Income-tax Act, 1961 presently deals specifically with the rate of tax, applicability and collection of tax on the income earned by cryptoexchanges and other crypto service providing platforms. The income earned by cryptoexchanges and other crypto service providing platforms is liable to tax under the head Business or Profession under Chapter-IV of the Income-tax Act, 1961. Applicability of tax will depend on the status and category of the taxpayer.”
On March 23, the then minister of state for finance (now information and broadcasting minister) Anurag Singh Thakur said in the Rajya Sabha: “Supply of any service, if not specifically exempted, is taxable under GST and no service related to cryptocurrency exchange has been exempted.”
“After recent detection of GST evasions by one cryptocurrency exchange, tax authorities and enforcement agencies are aggressively pursuing several leads, including some cases of frauds. Appropriate agency will take appropriate actions after completion of these investigations,” the second person said.
Last month, the Mumbai GST authority detected ₹40.5 crore tax evasion by cryptocurrency exchange WazirX. The authority also recovered ₹49.20 crore in cash pertaining to GST evaded, interest and penalty.
“During the investigation it came to notice that the firm [WazirX ] used to collect revenue from commission as trading fees, deposit fees and withdrawal fees. It was paying GST only on commission earned in rupee but was not paying GST on commission earned in WRX,” said a finance ministry statement issued on December 31. A GST rate of 18% is applicable on such transaction fees, it added. According to the exchange’s website, just like Bitcoin and other cryptocurrencies, WRX is a token created by WazirX.
“Investigations in the case of WazirX is also not complete as yet and the case is being probed by other agencies also,” the second person said. Various such entities are under scanner of GST, income-tax authorities and ED , which is already probing more than half-a-dozen cases of cryptocurrency related frauds.
While the finance ministry, the Central Board of Direct Taxes (CBDT), the Central Board of Indirect Taxes and Customs (CBIC) and WazirX, did not respond to email queries on this matter; a spokesperson for the Internet and Mobile Association of India-Blockchain and Crypto Assets Council (IAMAI-BACC) said: “We would like to avoid commenting on the above development for the time being.” IAMAI is an association of digital businesses in India and BACC is a Mumbai-based not-for-profit association under its aegis. According to BACC website, the association has over two dozens members including, Bittron, CoinDCX, coinbase, Coinswitch Kuber, Koinbazar, Liminal, TRM, WazirX and zebpay.
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