Crypto losses can’t be set off, clarifies govt

NEW DELHI: The worst fears of crypto traders have come true. The government has clarified that losses from one crypto can’t be adjusted against gains from another. Responding to questions by Congress MP Karti P. Chidambaram in Parliament, the Minister of State for Finance Pankaj Chaudhary said that as per the Budget, the loss from transfer of a virtual digital asset shall not be allowed to be set off against income from another virtual digital asset.

Crypto entrepreneurs are stunned by the revelation and are hoping that this rule is amended. “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,” said Nischal Shetty, CEO of WazirX. “Not being able to offset losses is very discouraging for serious investors,” says Sumit Gupta, CEO of Coin DCX.

Tax experts say this amounts to treating crypto assets like lottery tickets and gambling. “In gambling and lotteries, the income is taxed at a flat rate of 30% without any deduction of expenses and without set off against other income,” says Archit Gupta, CEO and founder of Clear. For example, in a lottery, each lottery ticket is a separate transaction. If you buy 1,000 tickets of Rs 100 each but win Rs 1 lakh in only one of them, you can’t set off the Rs 99,900 spent on the losing tickets against the income from the winner. Nor can the expenses incurred on lottery tickets be carried forward.

MoS Finance Chaudhary also said no deduction of any expenditure or allowance, apart from cost of acquisition, will be allowed while computing the income from the transfer of virtual digital assets. He clarified that infrastructure cost will not be treated as cost of acquisition for mining crypto assets. He said it shall be considered as capital expenditure and not allowable as a deduction.

There are also fears that the high tax and restrictive rules will encourage tax avoidance by investors. “This will be 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,” says Ashish Singhal, Co-founder and CEO of CoinSwitch.

Singhal said that the Budget recognised virtual digital assets (VDAs) as an emerging asset class, so the regulations should be at par with other asset classes. “Instead, we have taken a step backwards,” he said, describing the provision as “regressive”.

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