You Can’t Set off Losses in Crypto to Cut Tax Burden

Tax deduction of mining costs of cryptocurrencies and other virtual digital assets (VDAs) and offset off losses from one crypto transaction against gains from another will not be allowed, the government said on Monday, in a setback for the industry.

“Infrastructure costs incurred in the mining of VDA will not be treated as cost of acquisition as the same will be in the nature of capital expenditure,” minister of state for finance Pankaj Chaudhary said in the Lok Sabha.

Responding to question from congress member Karti Chidambaram, the minister also said loss from transfer of VDA will not be allowed to be set off against income arising from transfer of another VDA. “No deduction in respect of any expenditure than the cost of acquisition will be allowed,” he said.

The cryptocurrency industry said the decision to disallow offset between different cryptos and mining expenses is regressive and will discourage investor participation.

The 2022-23 budget has proposed levying income tax of 30% on crypto as sets with effect from April 1.

“The (finance) Bill also proposes to define VDA,” Chaudhary said. “If any asset falls within the proposed definition, such virtual asset will be considered as VDA for the purposes of the Act and other provisions of the Act will apply accordingly.”

The government will come out with a definition of virtual digital assets with a view to levy 30% tax on income from the transfer of such assets, he said.

The cryptocurrency industry urged the government to review its decision as it may drive away investors from Authorised platforms to grey markets. “Treating profits and losses of each market pair separately will discourage crypto participation and throttle the industry’s growth.”

Said Nischal Shetty, CEO of WazirX. Ashish Singhal, CEO, CoinSwitch, said “This is detrimental for India’s crypto industry and be millions who have invested in this emerging asset class. S-ET

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