Crypto tax filing: Can you adjust gains from Bitcoin against losses from Ethereum, SHIB, SOL or other VDAs?

Can you adjust losses in one crypto token against gains from another crypto? Finance Minister Nirmala Sitharaman announced in Budget Speech 2022 that no set off would be allowed for losses in VDAs, creating much confusion among crypto investors and traders. 

“No deduction in respect of any expenditure or allowance shall be allowed while computing such income except cost of acquisition. Further, loss from transfer of virtual digital asset cannot be set off against any other income,” the FM said in Budget Speech.

While a lot of clarity on taxation of virtual digital assets (VDAs) like crypto and NFTs are still expected from the Government, experts are of the view that an investor will be allowed to adjust losses from one crypto against gains from another crypto in the same year. 

Experts say that adjusting of losses within the same asset class cannot be considered as set-off of losses technically. 

What the Finance Minister meant was that losses from crypto or other VDAs cannot be setoff against income from other sources. 

For example: Suppose you invest in a crypto asset like Ethereum and make loss. You can adjust this loss against income from other VDAs – be it a crypto asset like Bitcoin or NFT, according to experts. 

“Even after Budget 2022 proposal, losses from Ethereum can be adjusted against gains from Bitcoin or NFTs or vice-versa. Adjustment of losses within the same class is not a set-off of losses technically,” Naveen Wadhwa, DGM, Taxmann, told FE Online. 

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Dr Suresh Surana, Founder, RSM India, also said one can adjust gains and losses in VDAs to calculate the income for paying 30% tax. (Read his explanation in detail here)

What is Virtual Digital Asset? 

As per the Budget proposal, VDAs would include “any information or code or number or token (not being Indian currency or any foreign currency), generated through cryptographic means or otherwise, by whatever name called, providing a digital representation of value which is exchanged with or without consideration, with the promise or representation of having inherent value, or functions as a store of value or a unit of account and includes its use in any financial transaction or investment, but not limited to, investment schemes and can be transferred, stored or traded electronically.” Non fungible token and any other token of similar nature are included in the definition.

30% tax on crypto income

Sitharaman also proposed flat 30% tax on income from VDAs. Commenting on this, Rakesh Bhargava, Director of Taxmann, said, “The blockchain technology can be promoted by the Govt. but not the cryptocurrencies or NFTs. The Government has adopted our recommendation to regulate the cryptos. Any income arising from transfer of any virtual digital asset on or after 01-04-2022 shall now be taxed at the rate of 30%.”

“However, no deduction in respect of any expenditure (other than cost of acquisition) or allowance or set off of any loss shall be allowed. This much-awaited announcement will bring relief to the Central Bank and the Security Agencies,” he added.