After the Supreme Court quashed the Reserve Bank of India (RBI) order on the regulation of cryptocurrency, startups dealing with these digital payments instruments have sought clarity from RBI as lack of clear directions is limiting their banking options.
Cryptocurrency platforms have now written to RBI seeking clarity on their status as financial institutions as banks are still hesitant to work with them citing lack of clear directions. Moreover, banks are unclear on the tax front as well.
In a circular dated April 6, 2018, RBI had made it illegal for all the financial organisations working with it to partner with cryptocurrency startups. However, the apex court, in March 2020, quashed RBI’s order and as a result, RBI had to withdraw its 2018 order.
However, with no clarity on aspects like whether cryptocurrencies would be categorised as either a commodity, currency, goods or a service, platforms are still not able to capitalise on the Apex Court’s decision.
Startups Seek No GST On Crypto Trade
Meanwhile, cryptocurrency startups have also asked RBI on how they are going to be taxed under the goods and services (GST) framework as they are still not categorised under a particular bracket.
Chairman and CEO of cryptocurrency platform Belfrics Global Praveenkumar Vijayakumar told the Economic Times that if digital assets are not exempted from GST, the digital currency exchanges in India are going to have a standoff with the tax authority.
This isn’t the first time when crypto platforms are seeking relaxation from GST. In 2019, the tax department had discussed with several cryptocurrency platforms on the GST issue. “In the wake of the recent Supreme Court ruling, we have also approached the RBI for clarity on this, as if we pay GST on the whole transaction, then most platforms would not be able to survive,” Vijayakumar said.
On the other hand, the indirect tax department, which collects GST, is said to have initiated preliminary discussions on how it can bring cryptocurrencies under the GST purview.
In 2019, the indirect tax department also initiated an investigation into Bitcoin exchanges in India. The department wants to ascertain the GST rate that can be levied on crypto trading platforms. Previously, the sales tax department and value added tax (VAT) authorities had also conducted investigations on how they can tax such platforms operating in India.