India’s cryptocurrency platforms lack clarity on tax provisions: Industry

After the Goods and Services Department, which
slapped a Rs 40 crore GST demand on crypto exchange WazirX last month, the Directorate General of Goods and Services Tax Intelligence (DGGI)—a law enforcement agency under the Union Ministry of Finance—is scrutinising multiple crypto firms including Buyucoin and Unocoin.

Industry members said crypto platforms have failed to pay the precise amount of GST largely due to confusion over the tax applicable on different business models adopted by these firms.

For instance, exchanges like WazirX and CoinDCX that facilitate peer-to-peer transactions and charge a commission on each transaction, count this as their main source of revenue. Others such as Unocoin and CoinSwitch Kuber also act as a broker or an aggregator and buy and sell cryptocurrency to users, in turn making profits on these trades, a model that is stoking greater regulatory scrutiny, executives said.

“They (DGGI) are looking at the different models and asking us for an explanation on how we account for transactions and they’re collecting the GST that was missed,” said Unocoin cofounder Sathvik Vishwanath, adding that there were “some business model categorisation issues because of which it was unclear how much tax the (crypto) exchanges need to pay”.

He said the tax authorities were yet to communicate the final tax amount and penalty to the platform, which it was prepared to pay.

DGGI did not reply to ET’s email queries until press time. CoinSwitch Kuber declined to comment.

ET earlier reported that
GST at 18% rate was applied to WazirX after regulators said it had failed to pay the indirect tax on commissions earned in its native token WRX.

The department, which was investigating WazirX for allegedly evading Rs 40.5 crore in tax, later recovered from the company Rs 49.2 crore—the GST owed plus interest and penalties, the December 31 report said.

Experts are of the view that until crypto is legalised in India it will be the taxman’s prerogative to interpret the guidelines.

“They (GST authorities) are coming up with their own explanations,” said Rameesh Kailasam, president and CEO of IndiaTech, an industry lobby for technology startups. “Not everything is named in law and how to be taxed but we presume that certain goods are treated in a particular way.”

The development comes amid continuing ambiguity around cryptocurrency regulations in India. The government
is discussing with stakeholders whether cryptocurrencies should be banned entirely or regulated, ET reported on December 11.

There is currently no clarity on how cryptocurrencies are taxed in India, mainly because of confusion over whether they should be treated as currencies, securities, or some other type of asset. Income tax on returns from various assets ranges from 10% to 35%. GST rates could also depend on how cryptocurrencies are categorised.

Seeking clarity

Crypto exchanges facilitating peer-to-peer trades said they pay GST on the commission charged from customers per trade. In the absence of clear direction, exchanges are interpreting the existing laws to remain compliant.

Shivam Thakral, chief executive of Buyucoin, which was pulled up by the DGGI for its failure to pay GST on commissions, said “ambiguity around the taxation of crypto assets and that lack of clarity on filing procedures” led to “human mistakes” and a delay in filing GST returns.

Pointing to a lack of crypto-specific provisions in the GST and income tax law, Sumit Gupta, CEO at CoinDCX said the exchange is relying on industry experts for clarity.

“We have also engaged with industry experts to interpret the applicability of law and tax rate applicability. An 18% GST on the exchange revenues from fees and various charges is what we are currently abiding by,” he said. “We would only urge regulators to provide clarity on all applicable provisions so that we can continue to remain compliant.”