GST evasion of Rs 824 cr by crypto firms detected

The government has uncovered goods and services tax (GST) evasion amounting to Rs 824.14 crore by major cryptocurrency exchanges, including Binance, WazirX, CoinDCX, and CoinSwitch Kuber, with only Rs 122.29 crore, including penalties and interest, recovered so far. Minister of State for Finance Pankaj Chaudhary shared this information in a written reply to Parliament on November 2.

Among the crypto exchanges, Binance's group company, M/s Nest Services Limited, was found to be responsible for the largest share of evasion, totalling Rs 722.43 crore. However, the finance ministry has yet to recover any amount from this case. WazirX, managed by M/s Zanmai Labs Pvt. Ltd, was found to have evaded Rs 40.51 crore, from which Rs 49.18 crore has been recovered. CoinDCX and CoinSwitch Kuber evaded Rs 16.84 crore and Rs 14.13 crore, respectively, with recoveries of Rs 20.86 crore and Rs 19.38 crore.

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

In terms of taxation, cryptocurrency transactions are taxed at a flat rate of 30%, with an additional 1% tax deducted at source (TDS) on transactions exceeding Rs 50,000 annually. Cryptocurrencies are classified as "Virtual Digital Assets" (VDAs) under the Income Tax Act, Section 2(47A), which covers most crypto assets except for gift cards and vouchers.

Since March 2023, crypto assets have been included under PMLA, requiring exchanges and crypto service providers to comply with anti-money laundering standards, including know your customer (KYC) procedures. The Financial Intelligence Unit-India oversees enforcement.

Although digital assets like cryptocurrencies are not assigned a specific HSN code or GST rate, the existing code 960899, which applies to "other miscellaneous articles," is used, with an 18% GST rate, the highest for this category. GST is only applicable to entities with sales or turnover exceeding Rs 40 lakh or those who voluntarily register for GST.

While the current GST Act does not define "crypto" or "digital assets," the term "virtual digital assets" was introduced in the latest finance budget. This encompasses any code or information representing value that can be exchanged and used in financial transactions, including non-fungible tokens (NFTs), but excludes currencies.

Government officials, including M Nagaraju, Secretary of the Department of Financial Services, and Reserve Bank of India (RBI) Governor Shaktikanta Das, have raised concerns about the risks cryptocurrencies pose to financial stability. Both officials caution about the potential for cryptocurrencies to undermine control over monetary policy and create instability in the economy.