According to a recent article in the Economic Times, the department of indirect taxes has begun investigating whether certain Bitcoin exchange businesses can be covered under the Goods and Services (GST) taxes.
It involved, the department examining some of the excellent Bitcoin exchange services in the country and demanded information on their business model and whether an indirect tax can be levied on their services. Nevertheless, bitcoin is considered as the best cryptocurrency to invest in India.
Developing an Understanding first
The interesting point to note is that both direct and indirect tax officials are approaching business executives to understand and detect their business model to know whether they can be taxed or not.
However, it can be understood that cryptocurrency is a game changer in the economy at the moment. We all follow the news and know that cryptocurrencies are gaining increasing importance as more and more businesses and mainstream establishments are accepting Bitcoins as an alternative pay.
Bitcoin, recently, has soared 1200% since the last year and keeps gaining new heights, both regarding value and acceptance.
The problem here, however, is that the taxation departments of India are not able to quantify whether the Bitcoin is a service, a good or currency. It is a perplexing task for them to classify the Bitcoin and other cryptocurrencies in one of these three categories due to its transactional nature.
Shivam Thakral, co-founder of BuyUCoin, a multi-crypto currency exchange was quoted saying to Inc42 that the Income Tax Department visited their office and asked for details of people trading Bitcoin in substantial volumes.
He mentioned that it was a simple survey operation. However, the authoroties were trying to trace the PAN/Aadhar and bank account details of these traders and investors.
What I think
In my opinion, Bitcoin and other cryptocurrencies will be classified as services, imports, and exports initially, given their non-traditional monetary nature and depend on the context of their trade. It essentially means that the above companies and companies are performing the same task, earn their share from Bitcoin exchanges through arbitrage or commission.
However, this is not the only field of taxation where the authorities are going to stop with their investigation. VAT agencies in Gujarat and Maharashtra are going to launch their cryptocurrencies. They will fall under the scanner too!
Moreover, there is a need to delve upon the future of these cryptocurrencies by anticipating what may come out of the issue. However, a brief peeks into the history of Indian authorities warning agencies against the use of cryptocurrencies is something that must be acknowledged before thinking about any investments.
Here is what RBI Governor Raghuram Rajan has got to say on the future of cryptocurrencies.
Read further: Here is the link to ET article