Whether Cryptocurrencies could be subject to GST?

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Whether Cryptocurrencies could be subject to GST?

 

 

Virtual currency is getting popular across the globe & picking up in the Indian market as well. Cryptocurrencies like Bitcoin, Dogecoin, Ethereum, etc have resulted in a digital revolution & is increasingly used as a medium of exchange for online goods and services. Few companies like Microsoft, Tesla, Apple, etc have also started accepting it as a consideration against sale.

Every new transactions requires revisit to the existing provision of tax law. So is the case of Cryptocurrency Crypto currency is considered as a quasi-currency in digital forms and often termed as Digital Money. There are lot of person in whose case the sale transaction is exceeding the threshold limit of Rs. 40 Lakh for GST registration for majority of the states. Now, question emerges whether Cryptocurrencies could be subject to GST?

The basic fundamental principle of GST levy is that it is applicable on “Supply of Goods & Services”.

The definition of “supply” as given in Section 7 of the CGST Act is very wide and will include transaction of cryptocurrency as well.

 

Whether Cryptocurrencies could be considered as Service?

“Services” means anything other than goods, money and securities but includes activities relating to the use of money or its conversion by cash or by any other mode, from one form, currency or denomination, to another form, currency or denomination for which a separate consideration is charged.

It typically does not exist in physical form (like paper money) and is typically not issued by a central authority. Certainly, the sale of cryptocurrency is not a “Service”. Whether it is a goods is the question we need to analyse.

 

Whether Cryptocurrencies could be considered as Goods?

  1. Article 366(12) of the Constitution defines “Goods” to include all materials, commodities and articles. The Constitution (101st Amendment) Act, 2016, inserted in clause 366(26A), the definition of “services” to mean anything other than goods.
  2. As per Section 2(52) of the GST Act, ‘Goods’ can be defined as “every kind of movable property other than money and securities but includes actionable claims, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before supply or under a contract of supply.”
  3. Similarly, Section 2(102) of the CGST Act defines ‘Service’ means –
    “Anything other than goods, money and securities but includes activities relating to the use of money or its conversion by cash or by any other mode, from one form, currency or denomination, to another form, currency or denomination for which a separate consideration is charged.”
  4. Cryptocurrency is not Money as it is not a legal tender as such
  5. In short, the definition of “Goods” as well as “service” excludes money and securities. Any cryptocurrency is not recognised as currency in India which means that it will fall within the definition of “Goods” discussed above. It would mean that the supply of Cryptocurrencies be it bitcoin, etherem etc will be considered as ‘taxable supply” and so it will be subject to GST.
  6. Since cryptocurrency is not a recognised currency, supply of cryptocurrency as goods or property in exchange for other virtual/tangible goods may fall within the ambit of ‘barter transaction’ & will be taxed accordingly. U/s 7(1)(a), supply includes all forms of supply of goods and services such as sale, transfer, barter, exchange, license, rental, lease or disposal made or agreed to be made for a consideration by any person in the course of or furtherance of business. Barter means to exchange one commodity for another without the use of money.
  7. Further, one may consider that the mining of bitcoin as an activity is done in furtherance of business and so any transactions of mining may also be considered as ‘service’ within the ambit of the GST Act
  8. According to the above provision of law, one may reasonably draw a conclusion that cryptocurrency will fall under supply and will be considered as supply under the CGST Act, 2017. GST will be levied on the value of cryptocurrencies as well as on the commission demanded.
  9. One may further note that it is a supply which neither falls under negative list nor exempt by any notification.

In view of this, GST may be levied on sale or transfer of cryptocurrency

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