India’s top seven Bitcoin exchanges, which include Zebpay, Unocoin, CoinSecureand BtcxIndia, plan to approach the Advance Authority of Ruling (AAR) for clear answers to these questions, two people with direct knowledge of the matter told ET. AAR is a quasi-judicial body that can decide the applicability of tax rates.
“At least one Bitcoin exchange has already filed an application with the Maharashtra AAR for future tax liability,” said one of the persons cited above. “The tax department is currently researching the concept of Bitcoins are a very complex subject.” Zebpay, Unocoin, CoinSecure and BtcxIndia didn’t respond to queries.
The development follows the income-tax department conducting searches at top Bitcoin exchanges in December. The indirect tax department is already looking at ways in which Bitcoins can be brought under GST. ET reported in December that the indirect tax department had launched an investigation into Bitcoin exchanges operating in India to ascertain the GST rate that can be levied on them. The sales tax department and VAT authorities launched an investigation on the taxability of Bitcoins in the last financial year.
For the exchanges, the rate could depend on what the authorities deem Bitcoins to be — goods, services or currency. If Bitcoin is held to be a currency, there will be no GST. If it’s a good, then a tax of 18% could be levied, and 12% if deemed to be a service.
“The question for many Bitcoin players is whether GST is applicable to the total revenue or on the margins they earn,” said Abhishek A Rastogi, a partner at law firm Khaitan & Co. “This is mainly because the tax authority must give clarity on whether Bitcoin exchanges are selling goods and services, or are mere trading platforms that earn margins.”
AAR DECISION TO DEFINE BIZ MODEL FOR BITCOIN EXCHANGES
According to another government official, who has reviewed the balance sheets of Bitcoin players, their size is quite substantial. “The combined revenue of top seven players would be around Rs 40,000 crore and they operate at about 20% margins,” the official said. “In most cases, whenever there is a ‘buy’ or a ‘sell’ order on their platforms, these exchanges charge huge differences, in the range of about Rs 1lakh.”