Indian Crypto Investors Can’t Offset Losses: A Big Turn in Taxation

According to the revelation in February, Crypto gains in India will be taxed at 30% from April

Indian authorities have been iffy about legalizing cryptocurrency for a long time. Finally, the whole buzz around cryptocurrency taxation has come to an end when the Indian Finance Minister, Nirmal Sitharaman, announced the roll-out of a 30% tax on all crypto gains. While India is still debating over whether citizens could sustain the tax or not, the ministry's clarity came as a blow to many Indian crypto investors. The government has cleared that losses incurred in one digital asset can't be offset against the income from another cryptocurrency.

Although many crypto investors value digital assets on a different level, Indian authorities have viewed it as winning from a lottery, casinos, gambling, or betting, which attracts over 31.20% GST on the entire value. After having back-to-back discussions and debates for years, they have decided to impose cryptocurrency taxation from April 2022. The authorities have proposed taxing income from the transfer of any virtual asset at 30%. In a matter of clarification yesterday, the Finance Ministry has unraveled that each Indian Crypto Investors Can't Offset Losses: A Big Turn in Taxationwill be taxed independently, which contrasts the taxation of stock markets. The explanation further shocked crypto investors with a much-regulated outlook on infrastructure costs for mining cryptocurrency. According to the ministry, the cost spent on mining crypto can't be seen as the cost of acquisition. Since the clarification came, crypto investors and exchange platforms seem to be in a mode of shock and vary.

What does Cryptocurrency Taxation in India Imply?

The Indian Ministry of Finance has clarified in the parliament how the government plans to impose cryptocurrency taxation. The Minister of State in the Ministry of Finance, Pankaj Chaudhary, has announced the insertion of section 115BBH to the Income Tax Act 1961, which will impose taxation of income from transfers of virtual digital assets (VDAs).

While answering the parliament members' questions, he clarified that infrastructure costs incurred in the mining of cryptocurrency will not be treated as the cost of acquisition. During further discussion, he also highlighted that 'loss from one cryptocurrency will not be allowed to be set off against the income arising from the transfer of another.'

The clarification comes just two weeks before India enters the crypto taxation mode. However, many crypto investors think that this new slapping of steep tax rates and strict regulations will limp the growth of the decentralized ecosystem in the country. Many crypto community founders have also expressed shock and disappointment. The Reserve Bank of India and the Indian government have been skeptical about the cryptocurrency sphere despite the rise in trading volume over the past two years. The Indian authorities have implied that digital currencies might be used for ill causes like money laundering, terror financing, and price volatility.

A Dead End for Many Indian Crypto Investors

According to the cryptocurrency taxation law proposed this February, investors should pay a flat 30% tax on all crypto gains. Besides, the Indian government has also mandated a 1% tax deducted at source (TDS) on all crypto transactions irrespective of a loss or profit. Nischal Shetty, Founder and CEO of WazirX, tweeted that this 1% taxation could fetch US$100 million in additional income for the government.

While there was still smoke over the burnt cryptocurrency taxation talks, the Finance Ministry has clarified that investors will not be allowed to adjust losses in one cryptocurrency against the profit of another. Besides, the crypto mining expenditure will not be treated as infrastructure costs but as capital expenditures. It will further put an end to the deduction on mining costs.

Bringing Crypto Under GST

The Indian government is currently working on bringing cryptocurrency under the goods and services tax (GST). This will impose taxation on the entire value of transactions. Currently, 18% GST is levied only on services provided by crypto exchanges and is categorized as financial services.

Since Indian authorities view crypto as a lottery, casinos, betting, gambling, and horse racing, they pitch for a 29% GST on the entire value. However, the ministry is yet to attain clarity in classifying cryptocurrency under the GST taxation.