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Applicability of GST on Bitcoin?

To say that bitcoin is quite the rage would be an understatement. The crypto currency has gone through numerous highs of late and as a result more people seem to gravitate towards this new fangled contraption. It is therefore no surprise that trading volumes are peak levels and even smaller investors/traders have accumulated high turnover figures.

We have written about the taxation of GST from a direct tax perspective earlier. In this note we are examining the applicability of GST on Bitcoin and other crypto currencies being traded in the market today.

GST on Bitcoin

GST or goods and services tax is applicable on the supply of goods and/or services. The sale of bitcoins therefore would attract GST if it falls within the domain of either goods or services.

Definition of Goods under GST

“Goods’’ from a GST perspective means 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. Since money and securities are excluded, it is relevant to explore what they are with respect to this definition.

Money has been defined in section 2(75) of the GST act as Indian legal tender or any foreign currency, cheque, promissory note, bill of exchange, letter of credit, draft, pay order, travellers cheque, money order, postal or electronic remittance or any other instrument recognized by the Reserve Bank of India when used as consideration to settle an obligation or exchange with Indian legal tender of another denomination but shall not include any currency that is held for its numismatic value.

Since the RBI has not granted any regulatory approval to bitcoin it should be given that Bitcoin is not money for purposes of taxation under GST. But then, are bitcoin securities?

Securities have been defined as per the GST act as having the same meaning as assigned under sub-section h of section 2 of the Securities Contracts (Regulation) Act, 1956. Which defines securities as :

1)      shares, scrips, stocks, bonds, debentures, debenture stock or other marketable securities of a like nature in or of any incorporated company or other body corporate

2)      derivative

3)      units or any other instrument issued by any collective investment scheme to the investors in such schemes

4)      Security receipt as defined in clause (zg) of section 2 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002;

5)      units or any other such instrument issued to the investors under any mutual fund scheme

6)      Government securities;

7)      such other instruments as may be declared by the Central Government to be securities; and

8)       rights or interest in securities

Those who are familiar with crypto currencies would agree that bitcoin or other tokens do not fall into the bracket of securities either.

So the question remains, are bitcoin taxable as services?

Services have been defined under GST as 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.

Conclusion

From an analysis of the above it seems that cypto currencies being akin to goods are more likely to be taxed as such than as services. This implies that since they are goods they should also be subjected to GST. Yes you read that correctly. GST on Bitcoin is very much a reality and those trading in the crypto currency should consider registration and compliance with GST. A contrary view , however, has been taken by several countries around the world which have either accorded the status of money to Bitcoin thereby exempting it from local GST, The American IRS has accorded the status of property to bitcoins. In the absence of any such declarations in India the applicability of GST on Bitcoin still remains and preparation for the same is something that cannot be overlooked.

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