Centre considers draft bill, likely to categorise cryptocurrencies as commodities

The Central government is drafting a new bill to clear the confusion over-taxation of cryptocurrency investments. Due to the lack of a clear-cut classification of cryptocurrency investments both taxpayers and income tax authorities are facing several problems.

In the draft bill, the Centre is mulling to categorise cryptocurrencies as an asset or commodity along with compartmentalizing virtual currencies on the basis of their use, according to a report in The Economic Times. The cryptocurrencies like Bitcoin, Ethereum etc. will be considered as an asset or commodity for all purposes like taxation and per user cases such as utility, investment and payments, the report added citing three people with knowledge of the developments.

Classification and Taxation

Sources cited by the publication said that cryptocurrencies for the first time will be classified as per the technology used by them, but for regulatory purposes the Centre will focus on the end-use of the cryptocurrencies. In addition to that, the bill is anticipated to define how these assets will be taxed in order to clearly classify them in the books of accounts.

As of now, when it comes to taxation or other purposes, there is no clarity on whether crypto-assets should be considered as a service, commodity, equity or as a currency of their own. Unless an asset is properly defined, there is uncertainty on how it should be taxed or regulated. The Centre is first looking at defining what cryptocurrency is.

Sources cited by the publication said that cryptocurrencies can be categorised in two ways- on the basis of the technology used by them or by their end-use. So before chalking out the regulations, the Centre has to first define what a cryptocurrency is. They also said that only the cryptocurrencies that come under the ambit of the Centre’s definition will get permission to be traded in the country and then they will be taxed accordingly. They also spoke about the possibility of the addition of something like Security Transaction Tax (STT) on the exchange of cryptocurrencies. If at all cryptocurrencies are classified as commodities, there is a possibility of the returns being taxed as business income at the pre-existing income tax rates.