No setoff to crypto loss: In a setback for crypto enthusiasts and trading platforms, the government clarified that losses incurred from one kind of virtual digital assets (VDAs) cannot be set off against the gains from any transaction involving another VDA while computing tax. This means that investors will have to pay a 30 percent tax for every gain they make and crypto losses are not deductible from the final taxation amount if different tokens or coins are traded.
Rs. 100 invested into Bitcoin
Rs. 100 invested into Ethereum
Total Investment: Rs. 200
You make Rs. 100 profit in Bitcoin and lose Rs. 100 in Ethereum
You have to pay 30% for Bitcoin profit since you won’t be able to offset Ethereum crypto loss
After 30% tax, You now have: Rs. 170.
Rs 100 invested in Ethereum will be your crypto loss that cannot be setoff
Mr. Karti P. Chidambaram, MP in Lok sabha Raised few Questions on crypto-currency. Mr. Pankaj Chaudhary, Minister of State for Finance responds to questions on taxation of cryptocurrency as follows-
a) The current legal status of cryptocurrency in India
Answer: Currently, Cryptocurrencies are unregulated in India.
b) whether infrastructure costs incurred in mining cryptocurrencies are to be treated as cost of acquisition and are therefore permissible deductions;(c) if so, the details thereof?
Answer: Finance Bill, 2022 (the Bill) has proposed to insert section 115BBH to the Income-tax Act,1961 (the Act) to provide for taxation of income from transfer of virtual digital assets (VDA). As per the proposed section, any income from transfer of VDA shall be taxed at the rate of 30%. Further,while computing the income from transfer of VDA, no deduction in respect of any expenditure (otherthan cost of acquisition) or allowance is allowed.The Bill also proposes to define VDA.
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. 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 the nature ofcapital expenditure which is not allowable as deduction as per the provisions of the Act.
(d) while losses incurred due to the transfer of virtual digital assets cannot be set off against any other income, whether the losses arising from the sale of one virtual digital asset can be set off against the gains arising from another virtual digital asset; and (e) if so, the details thereof?
Answer: As per the 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.
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