What is Impact of GST on Bitcoins?
A. If characterized as currency: On the indirect tax front, one begins to wonder if payments made in bitcoins for goods and services should be considered barter transactions or payments in cash. If bitcoins are considered “currency”, indirect tax implications should not arise.
However, in India, “currency” has been understood restrictively to include coins, currency notes, bank notes, etc., and other such instruments issued by a governmental authority.
B. If characterized as asset: However, where bitcoins are considered assets, parties holding them may be compelled to convert to regulated currencies and indirect tax implications may arise.
a. VAT: In such a situation, while value-added tax (VAT) implications may arise on exchange of bitcoins for cash, VAT may not be applicable to purchase of goods using bitcoins since Indian VAT legislations contemplate only sale of assets for cash consideration and not on barter transactions.
b. Service Tax:
i. Mining: From a service tax perspective, since the legislation already envisages barter transactions, service tax should be payable on exchange of bitcoins for taxable services. Therefore, the act of mining may be considered as a taxable service.
ii. Transfer of Bitcoins: Transfer of Bitcoin itself may not attract service tax since service tax is leviable on provision of services and not transfer of goods.
Unless there is a service which is provided in relation to transfer of Bitcoin or mining of Bitcoin, service tax may not be levied on Bitcoin related transactions.
iii. Transfer of Bitcoin as consideration : However, Section 67 (1) (iii) contemplates receipt of consideration in kind or in some other manner which is not ‘ascertainable’ and consequently, merely because consideration has been made in the form of Bitcoin the transaction will not be exempted from service tax.
Thus if an individual pays bitcoins for web hosting services,same shall be chargeable to service tax. Similarly , An intermediary like Zebpay needs to pay service tax on transaction fees on transfer of bitcoins
Gobal Scenario on Indirect Taxes: Countries such as Germany and UK have, however, attempted to extend their VAT laws to bitcoin transactions and India may yet include barter transactions in goods within the newly proposed Goods and Services Tax regime.
C. Way ahead:
Bitcoin, is not currently regulated and the government has plans to do so. That means all the activities related to Bitcoin shall be properly monitored (and) applicable taxes will be added. the Inter-Disciplinary Committee within India’s Ministry of Finance seeks to examine the existing global regulatory and legal structures governing virtual currencies and suggest measures for dealing with them, particularly as they relate to consumer protection, money laundering, etc.
D. Authors Note:
As of today, it may be safe to conclude that the present framework for taxation in India is sufficient for dealing with bitcoins and there are rational ways of applying tax laws to transactions in all cases depending on characterization.
Although entities in the industry would prefer for bitcoins to be characterized as currency for tax purposes owing to the lighter tax burden, such characterization seems difficult in the present scenario. Thus, unless RBI proactively takes steps to recognize bitcoins as currency in an attempt to regulate them, it may be advisable for merchants accepting bitcoins as payment to treat them as assets for tax purposes.
Bitcoins are definitely the new game changer in the era of the cashless economy, offering billions of Indians the ability to go cashless using digital currencies.
Digital India is the dream of our current government. By setting up a high-level committee to study and give suggestion on virtual currency regulations, the government has again shown their keenness to study, understand and take well-thought decisions.
source : http://www.tax-adda.com/2017/05/28/understanding-impact-of-gst-on-bitcoins-in-india/