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GST Evasion by Crypto Exchanges Amounts to Rs 824.14 Crore, Government Recovers Rs 122.29 Crore: Finance Ministry

• ByStartupStory     |    December 3, 2024

The Indian government has detected goods and services tax (GST) evasion amounting to Rs 824.14 crore by major cryptocurrency exchanges, including Binance, WazirX, CoinDCX, and CoinSwitch Kuber. However, the government has only managed to recover Rs 122.29 crore, including interest and penalties, according to a written reply by Minister of State for Finance Pankaj Chaudhary in Parliament on Monday.

The Binance group company, M/s Nest Services Limited, was found to be responsible for the largest portion of this evasion, with a total of Rs 722.43 crore, but no recovery has been made from this entity so far.

WazirX, operated by M/s Zanmai Labs Pvt. Ltd., was found to have evaded GST worth Rs 40.51 crore. In contrast, the government has successfully recovered Rs 49.18 crore from the exchange, including interest and penalties. Other exchanges, CoinDCX and CoinSwitch Kuber, were found to have evaded Rs 16.84 crore and Rs 14.13 crore, respectively. The government has recovered Rs 20.86 crore from CoinDCX and Rs 19.38 crore from CoinSwitch Kuber.

The finance ministry also shared that 47 Virtual Digital Asset Service Providers (VDA SPs) are now registered as reporting entities under the Prevention of Money Laundering Act (PMLA), 2002, with the Financial Intelligence Unit-India.

Taxation on Cryptocurrency Transactions

Income generated from cryptocurrency transactions is taxed at a flat rate of 30 percent, along with a 1 percent tax deducted at source (TDS) on transactions exceeding Rs 50,000 annually. Crypto assets are classified as “Virtual Digital Assets” (VDAs) under Section 2(47A) of the Income Tax Act, which covers most crypto assets, excluding gift cards or vouchers.

Since March 2023, cryptocurrency assets have been brought under the purview of the Prevention of Money Laundering Act (PMLA), which requires exchanges and service providers to comply with anti-money laundering standards, including Know Your Customer (KYC) norms. The enforcement of these regulations is overseen by the Financial Intelligence Unit-India.

GST on Digital Assets

Currently, there is no specific Harmonized System Nomenclature (HSN) code or GST rate for digital assets. Instead, the general HSN code 960899, which covers “other miscellaneous articles,” is applied with a GST rate of 18 percent—the highest in this category. GST liability applies only to individuals or entities with sales or turnover exceeding the Rs 40 lakh threshold limit for the financial year or those who voluntarily register for GST.

Although the current GST Act does not define “crypto” or “digital assets,” the term “virtual digital assets” was introduced in the finance budget. This term refers to any form of information or code representing value that can be exchanged or used in financial transactions. These assets can be stored or transferred electronically and include non-fungible tokens (NFTs) and other digital assets specified by the central government, excluding both Indian and foreign currencies.

Government Concerns Over Cryptocurrencies

Two weeks ago, M Nagaraju, Secretary of the Department of Financial Services, echoed the Reserve Bank of India’s (RBI) concerns, expressing skepticism about cryptocurrencies. Speaking at the State Bank of India Economic Conclave, Nagaraju said, “I am very skeptical of cryptocurrency. RBI is also very careful on that. We need to be very careful.”

In a similar vein, RBI Governor Shaktikanta Das raised alarms last month about the potential risks of cryptocurrencies to India’s financial and monetary stability. Speaking at a conference in the United States, Das said, “Cryptocurrencies pose huge risks to financial and monetary stability. They could create a situation where the central bank loses control of the money supply in the economy.”

The government’s ongoing scrutiny and the skepticism expressed by financial authorities signal growing concerns regarding the risks posed by the cryptocurrency market in India. As the regulatory landscape around digital assets continues to evolve, authorities appear determined to curb tax evasion and ensure compliance with legal standards.

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