The finance ministry on Monday said that losses arising from the transfer of a virtual digital asset (VDA) will not be allowed to be set off against the income arising from another VDA.
Junior minister for finance Pankaj Chaudhary, while speaking in Parliament on Monday, also clarified that the infrastructure cost incurred in mining VDAs will not be considered as cost of acquisition, being capital expenditure in nature, and hence not deductible in arriving at the gains made.
Mining is the process of generating crypto tokens and involves huge processing power and computers on the network. Though mining is not very widespread in India owing to high energy costs, this will discourage any mining activity as it makes taxes steeper.
The clarifications come at a time when various interpretations of the new taxation provision were doing the rounds and the industry had been looking for more clarity. This essentially me- ans that gains made by crypto investors under one VDA will be subject to 30% tax, but any losses they incur on any other will not be deductible.
For instance, this indicates that any loss made in buying and selling of Bitcoin cannot set off with profit in another token Ether. If you sell Bitcoin for a profit of Rs 100 and sell Ether for Rs 100 loss, you still have to pay Rs 30 as tax. Crypto investors, traders and other stakeholders have called the provisions harsh and unfair and claim it will discourage trading and harm the sector even as it remains unregulated. There was no immediate movement in the prices of various crypto tokens.
Ashish Singhal, co-founder & CEO, CoinSwitch, said it is “detrimental” for India’s crypto industry and “the millions” who have invested in the asset class. “We fear the lack of provision to offset losses will drive users away from KYC-compliant exchanges to grey market, which would defeat the purpose of the tax… If a regressive provision such as this would have been applicable in equities, it would have discouraged retail investors,” he said.
“The government is expecting people to treat each digital asset profit/loss separate. Unfortunate way to look at new technology. Hope they change this,” Nischal Shetty, founder, WazirX, tweeted.