Crypto loss setoff: With effect from April 1, 2022, the budget proposes a flat 30% tax on capital gains from crypto currencies/assets, non-fungible tokens (NFT), and other similar assets. According to the budget proposal, a flat 30% tax will be imposed regardless of how long a person has held a virtual digital asset. Furthermore, no other deductions will be allowed except for acquisition costs, and if a capital loss occurs as a result of a transaction involving these assets, no set-off against other income or carry-forward will be permitted. As a result, if you lose money on virtual digital assets, you won’t be able to offset the loss against any other income to lower your taxable income and thus lower your tax liability.
The Budget 2022 Explanatory memorandum states: “No deduction in respect of any expenditure (other than cost of acquisition) or allowance or set off of any loss shall be allowed to the assessee under any provision of the Act while computing income from transfer of such asset. Further, no set off of any loss arising from transfer of virtual digital asset shall be allowed against any income computed under any other provision of the Act and such loss shall not be allowed to be carried forward to subsequent assessment years.”
What happens if you lose money trading one crypto asset, such as bitcoin, but make money selling another, such as dogecoin? Can you offset the losses from bitcoins against capital gains from dogecoins in this situation, lowering the taxable capital gains on the crypto assets?
However, it can be inferred that a loss resulting from the transfer of Crypto assets can be offset by a gain resulting from the same financial year’s transfer of Crypto assets.
To better understand this, consider an individual with a salary of Rs 18 lakh, a gain on Bitcoin of Rs 6 lakh, and a loss on Litecoin of Rs 2 lakh. He can deduct the loss, and the net gain from the sale of Crypto Assets (both Bitcoin and Litecoin) would be Rs 4 lakh. The net gain of Rs. 4 lakh would be taxed at 30%, plus any applicable surcharge (nil in this case) and cess (1.2 percent, or 4% of 30% tax), for an effective tax rate of 31.2 percent. The income tax slab and rate that will apply to his salary income of Rs 18 lakh will be determined by the tax regime that he chose during the financial year.
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