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GST to prove heavy on BITCOINS


From past one year, Bitcoins have been much talked about topic. Since the advent of GST from 01.07.2017, it has raised the questions whether GST is applicable on bitcoins or not. Early in January it seems like Fog over levy of GST is getting cleared. Let’s understand, first of all the bitcoins are not the legal tenders as money as clarified by the ministry of finance. Now the question comes whether these are goods or services. Goods as defined by section 2(52) of CGST Act 2017 means every kind of movable property other than money and securities but includes actionable claim, 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 bitcoins are neither money nor movable properties hence they come out of the ambit of Goods. As per section 2(102) of the CGST Act Services 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. It is an established fact that bitcoins are property but due to their intangible nature, they are not covered by the term movable property, hence they are not goods as per GST Law. Since they are not goods they shall be considered as pure services with respect of definition of service as per section 2(102). It should be particularly noticed that the investment in mutual funds, shares cannot be understood on similar lines because they are classified as securities which again do not form part of either goods or services hence GST shall not be charged on their trading.

Question which further arises is whether the margins are to be taxed or the full amount of transaction. Since bitcoins are not money which are converted from one form to another or from one denomination to other, the full amount of bitcoins traded shall be subject to GST. For instance an investor buys bitcoins worth Rs. 10 lakhs, the whole amount of Rs. 10 lakhs shall be subject to GST. But what happens when the person sells his bitcoins and takes cash back from the exchange. The amount which is redeemed from the exchange shall form part of the gross annual turnover of the investor. If such redemption along with other supplies made under one PAN number crosses minimum threshold limit of Rs. 20 lakhs, the investor shall be liable to pay GST on the amount of the bitcoins sold by him.

            Next and foremost issue which arises here is as to what rate of tax shall be applicable on the trading of bitcoins. Since the nature of transaction is Financial and related services, the trading in bitcoins shall fall under the Heading 9971 as per S. No. 15 of Notification 11/2017 – C[R] or Notification 8/2017 – I[R] dated 28.06.2017 which is chargeable at the rate of 18%. So where an investor invests Rs. 10 lakhs in bitcoins, GST amounting to Rs. 1,80,000 shall be paid to the government. Meaning thereby that the customer will effectively get bitcoins only to the extent of 84.75% of the total cash outflow made by him. The amount paid as GST at the time of purchase of bitcoins shall be allowed as input tax credit (provided the investor is registered under GST) which can be set off against the GST liable to be paid when the investor redeems his bitcoins. Same goes with the bitcoin exchange as well, they shall get input tax credit of the GST paid to the investor at the time of redemption of bitcoins. It should be ensured that the proper tax invoices are raised by the respective parties while charging GST from the other.
  
Keshav R Garg
(B.Com, FCA, CS, ISA (ICAI))
Author: Bharat's GST Ready Reckoner
            A Handbook on GST

Member: Indirect Tax Committee of CII, 
Founder: MyGst.MyTax Foundation
Adviser: Industries Association of Chandigarh
Adviser: Chambers of Chandigarh Industries
Address: 3328, First Floor, Sector 27 D, Chandigarh, India - 160 019
Phones: +91-172-461-3328, +91-98880-90008

Mail: keshavgarg@kdai.in
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