Loss in one crypto asset can’t be set off against another, clarifies govt
In a big jolt for the crypto industry, the government on Monday clarified that as per the Budget 2022 proposals investors will not be allowed to set-off losses in one crypto asset against another. Further, mining infrastructure will not be eligible to be deducted as the cost of acquisition.
For the first, Finance Minister Nirmala Sitharaman on 1 February had announced a 30% tax on any income from the transfer of virtual digital assets (VDA) or crypto assets. The tax proposal covered all emerging digital assets, including non-fungible tokens (NFTs), assets in metaverse, digital currencies and tokens, among others.
Along with the 30% tax, the Union Budget 2022-23 has also proposed a 1% TDS on the transfer of such assets.
Tax experts were split on whether investors could set-off losses in one crypto against another crypto asset. Set off of losses means adjusting the losses against the profit or income of that particular year. This provision is available in stock investments.
Minister of State for Finance Pankaj Chaudhary informed Lok Sabka on Monday, “As per provisions of the proposed section 115BBH to the Income-tax Act, 1961 (the Act), loss from the transfer of VDA will not be allowed to be set off against the income arising from transfer of another VDA.”
He was responding to the queries raised by the Member of Lok Sabha Karti Chidambaram on the status crypto currency.
Chaudhary also informed the Lower House that cryptocurrencies are currently unregulated in India.
On the question whether infrastructure costs incurred in mining crypto currencies are to be treated as cost of acquisition, Chaudhary said, “As per the proposed provisions of section 115BBH, infrastructure costs incurred in mining of VDA (eg. crypto assets) will not be treated as cost of acquisition as the same will be in nature of capital expenditure, which is not allowable as deduction as per the provisions of the Act.”
The government in the Union Budget for 2022-23 has for the first time provided definition for crypto assets and set out a list of proposals on the taxation of this new asset class.
Though the budget has provided some much-awaited clarifications over the taxation treatment of crypto assets, the government did not clarify if the virtual digital assets will be a currency, commodity, or security.
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