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GST on Supply of Crypto or Digital Assets

Updated on :  

08 min read.

In Budget 2022, our honourable Finance Minister announced a levy of income tax at the rate of 30% on gains realised on the transfer of virtual digital assets. Tax at the rate of 1% needed to be deducted on every trade (buy, sell or exchange) of virtual digital assets. Losses arising from virtual digital assets cannot be utilised or set off against any source income.

These announcements have already disrupted the cryptocurrency space but left the traders and investors in one more doubt whether GST would be applicable or not since the above statements only covered the direct tax portion.

In this article, we will explore the existing laws of GST to find out whether it applies to crypto or digital assets.

Meaning of crypto or digital assets under GST

Currently, the GST Act does not define crypto or digital assets. We can refer to the definition of virtual digital assets introduced in this finance budget.

Virtual digital asset means any form of information or code representing value exchanged and can be used in any financial transaction. The asset can be stored or transferred electronically.

Virtual digital assets also include non-fungible tokens and any other digital asset specified by the central government but not Indian or foreign currencies.

Does it fall under the scope of supply under GST and exemptions?

Before covering them under GST, virtual digital assets need to be classified as goods or services.

Under GST, goods include moveable properties, actionable claims, crops and anything attached to the land which needs to be severed before its sale. Goods exclude money and securities.

While services are anything other than goods, money and securities, it includes the use of money or conversion from one currency to another currency for which a separate consideration is charged (for example, commission or interest).

Let’s look into the meaning of money and securities under GST.

The money includes Indian legal tender or foreign currency, cheque, letter of exchange, pay order, electronic remittance or any other instrument recognised by RBI, which is used to settle against an obligation.

Securities include shares, bonds, debenture or any other instrument of like nature associated with any company. It also includes derivatives, units issued by any investment scheme or government securities.

Hence, virtual digital assets cannot be classified as money or securities, and these will be regarded as “goods” for applicability under GST.

As far as the exemption is concerned, the sale of crypto or digital assets is not covered in Schedule III of the GST Act or under any notification issued by the department. Hence, the sale of crypto or digital assets is taxable under GST.

Who must pay GST on supply crypto or digital assets and GST rate, HSN code?

Crypto or digital assets can be obtained through crypto exchanges or mining, i.e. self-generation. As per GST Law, the supplier of goods levies and collects GST. Accordingly, the seller of crypto or digital assets needs to pay GST and collect from their buyer irrespective of sale executed through exchanges or any other means.

Currently, there is no particular HSN code and rate for digital assets; hence we may refer to HSN code 960899 named “other miscellaneous article”, stating a rate of 18% (highest among this category).

Further, only those persons will be liable to pay GST whose sales/turnover crosses the threshold limit of Rs 40 lakhs during the financial year or who have registered themselves under GST voluntarily.

Input tax credit claims for GST on crypto or digital assets

Under GST Law, the input tax credit can only be availed if the goods or services are used for business purposes. 

GST levied on the purchase of crypto or digital assets or any other goods or services used for dealing in crypto, or digital assets can be used as an input tax credit. Other goods or services may include broker commission, consultancy services, software, the cost to generate digital assets, etc.

Advance rulings

Currently, the top crypto exchanges are seeking clarification on the applicability of GST on crypto or digital assets. More than 10 crore people have invested in cryptocurrencies worth more than Rs.400 crores, and hence any amendments in GST law may be a burden to not only the investors but also to the crypto exchanges.