Much to the disappointment of crypto traders, investors and industry experts, the Central Government has clarified that losses from one type of crypto or virtual digital asset cannot be set off against gains from other crypto assets while calculating Income Tax.
For example, if you make loss in Ethereum and gain in Bitcoin, you won’t be able to set off the loss against the gain while computing 30% tax, according to the Government.
Ahead of the start of the new financial year 2022-23, the clarification was given by Union Minister of State for Finance Pankaj Chaudhary in a written reply to a query on Monday (March 21, 2022). He said that loss from the transfer of VDA will not be allowed to be set off against the income arising from the transfer of another VDA.
The minister also said that while computing the income from transfer of VDA, no deduction in respect of any expenditure (other than the cost of acquisition) or allowance is allowed.
Commenting on the clarification, Rohinton Sidhwa, Partner, Deloitte India said, ”It’s a continued effort to isolate and disincentivize crypto currency related activities in India. The mining expense disallowance is unlikely to impact the majority of traders, however the prevention of offset between different cryptos will probably negatively impact many traders.”
30% tax on income from transfer of VDAs was announced by Finance Minister Nirmala Sitharaman in her Budget Speech 2022. “…for the taxation of virtual digital assets, I propose to provide that any income from transfer of any virtual digital asset shall be taxed at the rate of 30 per cent,” the FM had said.
Crypto industry insiders are disappointed with the clarification provided by the Government.
“As per response by Mr. Chaudhary in the Parliament today, investors will not be able to offset losses from one crypto trading pair by gains from another type. Moreover, it also mentions that the mining infrastructure costs will not be included in the cost of acquisition to be claimed as a deduction. Treating profits and losses of each market pair separately will discourage crypto participation and throttle the industry’s growth. It’s very unfortunate, and we urge the government to reconsider this,” Nischal Shetty, CEO, WazirX, said
Ashish Singhal, Co-founder & CEO, CoinSwitch, said, “This is detrimental for India’s crypto industry and the millions who have invested in this emerging asset class. We fear the lack of provision to offset losses will drive away users from KYC-compliant exchanges and platforms to the underground peer-to-peer grey market, which would defeat the purpose of the tax.”
“The Budget recognised virtual digital assets (VDAs) as an emerging asset class. Therefore a natural course of action would have been to progressively bring the regulations at par with other asset classes. Instead, today, with this clarification, we have taken a step backwards. If a regressive provision such as this would have been applicable in equities, it would have discouraged retail investors from participating,” he added.