To sign up for our daily email newsletter, CLICK HERE
The concept of cryptocurrency is not new to anyone, it is also true that the efforts to legalize his payment scheme have been going on for a while now. Many countries have come forward with their efforts to watch this transaction model. The basic feature of cryptocurrency is its decentralized finance model. This means any regulatory authority, central bank, or taxation authorities review or traces this transaction model. Investors undertake user transactions without the need for any banking intervention. Also, another feature of cryptocurrency is its ability to be a global currency. This means an investor can buy cryptocurrencies using any country’s fiat currency. Additionally, the same can be sold and transacted through any currency. Apart from this, you must know the major drawbacks of exchange.
The decentralized finance model also had its cascading effect on the global economy. Financial experts and investment specialists feel this currency model to be a threat. The currency may hamper the current economy and entire monetary standards. Additionally, these currencies can also be used for anti-money laundering and terrorist funding. Considering these risks, many countries have come forward with suggestions to track and track these investments. Certain countries have come forward with their native cryptos. Others have tried to partner with crypto exchanges to get details of investors. Many countries including India have imposed tax regulations on capital gains from crypto investments. India has taken one step ahead and imposed a tax regime of 30%, the highest slab in the country.
Cryptos under GST regime
While a 30% slab was a shocker, there is another one waiting for crypto investors. The government is now working on policies and processes to bring cryptocurrencies under the GST regime as well. In this way, the government will be able to tax the entire amount of investments rather than the capital gains. In the current regime, cryptocurrencies are brought under an 18% GST regime with 9% on central and 9% on state-level goods and services tax.
The government authorities including the GST steering committee are of the strong opinion that cryptos are like gaming. The gaming industry including lottery, horse racing, casinos, gambling, and betting attracts a 28% tax. On similar lines, the crypto industry will also be brought under the radar of 28% tax slabs. As of date, the government has classified the currency under the GST model, however, the GST tax regime is yet to be imposed.
What will happen if cryptos are brought under the GST regime?
If the government and financial authorities decide to impose GST on cryptocurrencies then the rate of tax on each may increase up to 1%. The decision on this will depend on the classification of crypto. This classification is yet being debated and a decision on this is awaited.
During the government announcement, the government also clarified that there will be a 1% tax deducted at the source for every investment undertaken by an individual. Additionally, the Union Finance Minister also cleared that losses of one crypto cannot offset the other. That means if you gain profit on one crypto and loss on another doesn’t shy you away from paying the taxes. As an investor, you still need to pay taxes on gains and tax deductions at the source for both investments.
India today has more than 100 million crypt investors and stands as the first in the crypto market. Given this investment volume, the government has also clarified that it will soon be launching a native currency. It will back the blockchain technology. Also, in case a company is interested in undertaking mining activity then there is a separate tax implication here as well. The expenditure on such investments will not be treated as a capital expense and no deduction on taxes will be allowed.
Also, these cryptocurrencies make use of cryptography that prevents any malpractices in cryptocurrencies. This also means payments are secured. It also allows for online payments without the need for any banking intervention. Cryptocurrency also makes use of various techniques and algorithms to confirm each transaction.
With the changes brought in by the government, there is a need to understand how this investment model must work. While the tax regime was announced, there is still clarity required on the period when this tax regime becomes applicable.