The Directorate General of GST Intelligence (DGGI) has recently cracked down on the half a dozen cryptocurrency exchanges operating in India for evading their goods and service tax liabilities. The authority already recovered Rs 49.2 crore from major exchange WazirX, but authorities estimate a total of Rs 70 crore of evasion has been detected. But the DGGI’s action now may set the stage for the first set of precedents on how cryptocurrencies and their services are taxed, reported The Economic Times.

"GST on cryptocurrency has been a subject matter of dispute from the taxability and valuation perspective. Transaction fees are always paid by senders; these will be part of the consideration as they are made in cryptocurrency in response to the supply of services by the recipient of services, and cryptocurrencies are rewarded by the blockchain system to the crypto miners on successful verification of transactions," said Abhishek A. Rastogi, Partner at Khaitan & Co.

Now the tax departments stand to slap an 18 percent GST on cryptocurrency exchanges for their services and their margins bring them more in line with commodity exchanges and other similar services. The move from the tax department has been welcomed by many in the cryptocurrency industry as it brings much-needed clarity to the hazy segment.

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The crackdown by tax authorities on cryptocurrency exchanges started from an investigation into the business practices of WazirX. The company allowed customers to make trades using its own cryptocurrency WRX or the rupee. While the company collected a commission on both, rates for both methods differed.

However, the company was only paying GST on the commissions it was collecting on transactions made through the rupee and not the ones paid through WRX. Since this commission was being charged to both the buyer and seller in the form of trading fees, deposit fees and withdrawal fees, the sum quickly ballooned to a huge figure.

Zanmai Labs, which manages WazirX, reached out to CNBC-TV18 and said it has been "diligently paying tens of crores worth of GST every month. There was an ambiguity in the interpretation of one of the components, which led to a different calculation of GST paid. However, we voluntarily paid additional GST in order to be cooperative and compliant. There was and is no intention to evade tax."

However, it said regulatory clarity is the need of the hour in the Indian crypto industry. "It will also provide us with more clarity on taxation so we can work in sync with lawmakers and continue to be a responsible industry player," it added.

Also read: Top cryptocurrency trends to watch out for in 2022

First Published:Jan 4, 2022 8:47 PM IST