Centre is planning to introduce a "reverse charge" tax for transactions in virtual assets on overseas platforms as part of the latest round of crypto regulations designed to levy taxes on foreign companies such as Coinbase, Binance, and Bitfinex, which are doing business in India. This would be applicable to all "virtual digital assets" right from Bitcoin, Ethereum, and all other coins to NFT and related earnings. Currently, foreign crypto exchanges (not registered in India) that are catering to Indian investors are not obliged to pay taxes in the country, while homegrown platforms have been paying 18% goods and services tax (GST) on the commission that they charge from traders.

Under the reverse charge mechanism, the recipient of goods or services is liable to pay taxes instead of the supplier. In simple terms, if an investor buys digital coins from foreign exchanges not listed in India, then he/she will have to pay the GST on reverse charge basis. The proposed reverse charge, which is yet to be rolled out, could be taxed at 18% on commission earned through transactions on foreign crypto exchanges. This would increase the overall transaction cost of investors who traded on overseas platforms.

The move is also aimed at discouraging investors who have been moving to overseas exchanges to avoid 30% taxation on income from cryptocurrencies and other digital assets. Finance Minister Nirmala Sitharaman in her Budget 2022 had proposed a flat 30% taxation on income from crypto and digital assets, which came into force from April 1 after the Lok Sabha passed the Finance Bill. Adding to it, 1% TDS is also levied each time you sell a crypto asset, whether there is profit or loss, and will be set-off against the crypto tax at the end of the year.

According to Shivam Thakral, CEO, BuyUcoin, the impact of GST on the reverse charge basis will not be felt much by the retail investors but corporate accounts will be affected in a big way. “The way forward will be that foreign exchanges will have to register themselves in India to meet the tax compliance and pay GST to the government similar to Indian exchanges. Additionally, GST registered crypto exchanges in India will have to pay GST on the trading fee they are paying on International exchanges thus increasing their tax burden,” he says.

Jennifer Lu, Cofounder at Singapore-based virtual currency exchange Coinstore, also welcomed the proposed regulations, saying that it will not have any significant impact on investor sentiment.

“At Coinstore, we always welcome positive and healthy regulations in countries across the globe. In the Indian context, 18% GST based on a reverse charge will not have any significant impact on the investor sentiment and will increase transparency in the transactions conducted on foreign exchanges. I believe, most of the foreign exchanges operating in India adhere to strict KYC and AML procedures and we are willing to have a constructive dialogue with the governments/regulators around the world to create a positive and healthy regulatory environment for crypto/blockchain,” says Lu.

As per the report, the GST Council is likely to discuss the issue in the upcoming meeting scheduled to take place this month. The 47th GST Council meeting, which was supposed to happen in April 2022, was pushed to May due to the Union Finance Minister Nirmala Sitharaman’s U.S. trip for the World Bank-IMF meeting.

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