India’s Ministry of Finance has started work on a comprehensive Goods and Services Tax (GST) scheme, which is said to constitute an indirect tax on crypto assets. According to local Indian media. The purpose of considering an indirect tax on cryptocurrencies is to act as a check against potential revenue loss to the Treasury due to the ambiguity surrounding the true nature of the asset class.
Depending on its legal status, the new Goods and Services Tax (GST) rate for cryptocurrency will be determined, which is likely to drop between 18% to 28%, the report said. Indian Finance Minister Nirmala Sitram intends to define the characteristics of cryptocurrencies, their use, and how they fit into the existing legal framework.
To determine the tax rate under the GST system, investors will first have to wait for a determination of whether cryptocurrencies will be defined as goods or services. According to reports, the Ministry of Finance can impose a dedicated rate for digital assets, which may not necessarily fall between 18% and 28%. The decision is expected to be made sooner rather than later.
The report also revealed that the GST will be calculated only in terms of margin and service fees, and not on the full value of the crypto asset itself while the government considers its treatment of specialized transactions such as mining and airdropped crypto tokens.
India holds heated debates over crypto assets
The treatment of cryptocurrencies and their suitability for the Indian legal system has long been a matter of contention in the country.
Sitharaman recently cautioned investors against crypto investments, citing their volatility, while the Reserve Bank of India noted on record that crypto assets pose a threat to the country’s financial stability.
On the recent developments around crypto regulation, Sitharaman met with IMF Managing Director Kristalina Georgieva in Delhi to discuss the importance of regulating crypto assets, and the need to form a globally coordinated and synchronized approach to this issue.
Despite its public caution, India recently stepped up its bid for the Central Bank Digital Currency (CBDC) project. India’s central bank, the Reserve Bank of India (RBI), has asked four public sector banks to run a CBDC pilot program ahead of a possible rollout during this fiscal year.
India has become an important cryptocurrency market, dominating the global cryptocurrency adoption index, ranking in the top ten out of 154 countries along with mega markets like the United States. Given this, the Indian government has become more active in clarifying its definitions about cryptocurrencies.