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21 May2021
  • By Admin
  • Category Goods and Service Tax
  • Views 352

Today, with the rise of cryptocurrencies and their underlying technology, we stand at the helm of a digital revolution. Cryptocurrencies like Dogecoin, Bitcoin, Ethereum, and Mon-roe are the digital currency used to buy online goods and services, just like tokens or casino chips. Cryptocurrencies operate using a technology called blockchain. There are more than 6,700 different cryptocurrencies traded publicly, according to, a market research website. These currencies are unique in their technical aspects and create huge complications in their taxation structure. This article intends to give the readers an overview of the complete landscape for the taxation of cryptocurrencies and the indirect tax structure analysis, particularly after implementing the Central Goods and Services Tax Act, 2017. 

GST was implemented w.e.f. July 1, 2017, subsuming most of the indirect taxes, barring a few. In general, bitcoins can be attained through mining or by purchasing through a bitcoin exchange. Section 7 of the CGST Act defines 'Supply' as mentioned in sub-section (3) as stated below:

"3) Notwithstanding anything contained in subsection (1),

(a) activities or transactions in Schedule III; or

(b) such activities or transactions by the Central Government, a State Government or any local authority, engaged as public authorities, as notified by the Government on GST Council's recommendations,

will be treated neither as a supply of goods nor a supply of services."

GST is applicable on the supply of goods or service or both. Further, Article 366(12) of the Constitution defines "goods" to include all materials, commodities and articles. The Constitution (101 Amendment) Act, 2016, inserted in clause 366(26A), the definition of "services" to mean anything other than goods.

Further, 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." The definition of 'Goods' excludes money and securities. So, if we consider cryptocurrency as money, it would be exempted from GST as a pure transaction in money does not attract GST as per Section 2(52) of the Act. But on the other hand, the treatment of cryptocurrency as goods/property would mean that the supply of bitcoins is a 'taxable supply and will be subjected to GST. 

From a technical viewpoint, a supply of cryptocurrency as goods or property in exchange for other virtual/tangible goods should fall within the ambit of 'barter transaction'. Under Section 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. 

  1. Transactions involve an exchange of cryptocurrencies for money or other cryptocurrencies or vice-versa, and a commission is charged as consideration. Here, GST will be levied on the value of cryptocurrencies as well as on the commission demanded.

  2. Transactions involving an exchange of cryptocurrencies for goods and services, GST will be levied on the transaction value.

  3. In a few instances, the transaction occurs via an agent/ intermediary to procure crypto from recipient in exchange for goods/services on behalf of supplier. In these circumstances, two separate transactions take place. The first between the recipient and the supplier and the second between the intermediary and the supplier. Both of them will be chargeable under GST independently.

Further, it is quite pertinent to note that if the supplier is unregistered in all the three scenarios stated above, the tax would be payable on a reverse charge basis, specifically when the service recipient is located in India. RCM requires the service recipient to pay taxes on the supply of goods/services to him instead of the service provider, for which he is also needed to get compulsorily registered. 

Also, there are some loopholes in the tax structure. At times, some transactions get taxed twice, first on supply and second on consideration, leading to a higher tax incidence and a considerable burden on businesses. The issue gets more complicated if the supplier or receiver resides outside the territorial limits of India, i.e., in international transactions. 

Furthermore, a supply of cryptocurrencies would also be included in the 'Negative List' as inter se sale or purchase of the foreign currency among banks, among authorised dealers of foreign exchange, or banks, and such dealers are exempt from taxation

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."

Further, under the erstwhile Service Tax regime, 'Service' meant any activity carried out by a person for someone else for consideration. The vital elements for taxing a service therefore includes 

(i) supply of taxable services

(ii) in the furtherance of a business 

(iii) for a consideration, and 

(iv) a benefit of service to be provided by a party (supplier) in favour of another party (recipient).

Assuming that the mining of bitcoin as an activity is done in furtherance of business, any transactions of mining, prima facie appears to be a 'service' within the ambit of the Act. . It is pertinent to note that any activity performed without consideration is outside the purview of 'supply' u/s 7 of the GST Act. In the case of mining bitcoins, not every bitcoin miner is rewarded with bitcoins in return for solving cryptographic algorithms. As we know, mining is a very competitive process whereby only a few successful miners are rewarded with new bitcoins. Thus, an unsuccessful supply of computing power will not be taxable under GST.

Conclusion -

As we all are aware that the Reserve Bank of India had asked its regulated associations to discourage dealing in cryptocurrencies for fiat (INR) on and off-ramps by individuals or business entities and, therefore, prohibiting buying and selling of cryptocurrencies through banks. Despite all these limitations, India ranks amongst the top five nations globally, holding 44 per cent of the world's share. The tax treatment for these cryptocurrencies like bitcoins and ethereum will be ideal if our government legalises their trading. Then, GST will be charged on the commissions or margins that bitcoin exchanges earn from their users. This will ensure that the trading of the currencies is regulated and adding to tax revenues for the government.

Authored by CA Manish Gupta and assisted by Ms. Sanskriti Naruka

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