Cryptocurrency service providers seek clarity on taxation

The Directorate General of GST Intelligence's (DGGI) recent crackdown on nearly half a dozen of Cryptocurrency service providers in India has brought the focus back on the need for clarity on how cryptocurrencies and related services should be taxed.

The leading Cryptocurrency exchange WazirX, which has been a major focus of the DGGI crackdown, has paid Rs 49.2 crore as GST with interest and penalty.

While the firms providing cryptocurrency related services have been on the radar of the tax authorities due to avoidance of taxes, Cryptocurrency exchanges say the main issue is related to clarity on regulation.

"We strongly believe that regulatory clarity is the need of the hour for the Indian crypto industry. It will also provide us with more clarity on taxation so that we can work in sync with the lawmakers, and continue to be responsible industry players," said a spokesperson of Zanmai Labs Pvt. Ltd, that runs WazirX.

Besides Zanmai Labs Pvt. Ltd, which runs WazirX, last week the DGGI also raided the premises of several other firms engaged in Cryptocurrency related businesses including Bitcipher Labs LLP, which runs Coinswitch Kuber, Neblio Technologies Private Limited, which runs CoinDCX, iBlock Technologies Private Limited, which runs BuyUcoin, and Unocoin Technologies Private Limited, which runs Unocoin.

According to the authorities, tax evasion to the tune of Rs 70 crore has been detected.

Reacting to the DGGI raids, iBlock Technologies Private Limited, which runs BuyUcoin, said: "Lack of clarity on filing procedures led to some human mistakes from our end which were flagged by the tax authorities and brought to our notice."

"As soon as the matter was brought to our notice by GST officials, we obediently paid all the taxes along with incurred interest and penalty. We offer our full cooperation and support to all the regulators in creating a healthy regulatory framework for the booming crypto industry in India," iBlock Technologies Private Limited said in a statement.

Issues related to cryptocurrencies have evoked wide interests and controversies. In 2018, the Reserve Bank of India (RBI) announced a complete ban on cryptocurrencies and prohibited banks, NBFCs and other financial institutions from facilitating transactions for entities related to cryptocurrenices.

However, in March 2020, the Supreme Court of India quashed the central bank's order. While the Supreme Court's order has paved the way for financial institutions facilitating the trading of cryptocurrencies, there is still no clarity on taxation and other issues. There are no crypto specific provisions in the GST and income tax.

A Bill concerning cryptocurrency was proposed to be presented in the Parliament during the winter session. However, the government decided to pull back the Bill. A new Bill is under consideration.

The confusion related to taxation and other issues related to cryptocurrencies is likely to prevail until a regulation is passed in Parliament.