India's Central Board of Indirect Taxes and Customs (CBIC) is considering imposing an 18 percent goods and services tax (GST) on cryptocurrency transactions, according to a report based on interviews with sources who have "direct knowledge" of the proposal. The levy could even be applied retroactively to all trades that took place on or after July 1, 2017.
The CBIC, an agency within the Ministry of Finance's Department of Revenue, is weighing the proposal and will present a finalized version of it to the GST Council, which is chaired by the country's finance minister. Under such a scheme, cryptocurrencies would be defined as intangible goods, giving them a legal status similar to that of software.
The proposal further advises applying an integrated GST to cross-border transactions, effectively equating those transactions to the import or export of goods in the eyes of the law.
It also suggests levying a tax on cryptocurrency miners' block rewards and requiring these miners to register with the government if the rewards they reap exceed 2 million rupees in value.
The proposal addresses cryptocurrency exchanges as well, recommending that they be required to register and that they be taxed on the commissions they collect. Overseas exchanges serving Indian clientele would be subject to the integrated GST.
Finally, the proposed regulations include a GST on cryptocurrency wallets, though it's unclear how such a tax might work in practice. The proposal calls for wallet service providers to register with the government.
Abhishek Jain, an India-based senior associate with the consulting firm Ernst & Young, predicts that establishing the legal grounds to levy a GST on cryptocurrency transfers would be a relatively simple task, one that could be accomplished by issuing a circular. By contrast, he said, taxing cryptocurrencies themselves, either as securities or as a form of currency, would require legislative action.
In February, India's Income Tax Department (a branch of the Ministry of Finance that is distinct from the Department of Revenue) sent notices to some cryptocurrency holders who had "not declared income while filing taxes and have not paid tax on the profit earned by investing."
In April, the country's central bank prohibited regulated financial institutions from providing services to cryptocurrency exchanges. India's Supreme Court will hear an appeal against that ban on July 20.