BENGALURU: The government on Monday said that crypto investors would not be able to set off losses in one crypto asset against the gains from another asset. Finance Minister Nirmala Sitharaman had announced the same in the budget. The crypto community was hopeful that they would get some clarity on taxation, but Minister of State for Finance Pankaj Chaudhary informed the Lok Sabha on Monday that loss from the transfer of virtual digital assets (VDA) will not be allowed to be set off against the income arising from transfer of another VDA.
Crypto exchanges say that these stringent measures are “detrimental” for the crypto industry. The new cryptocurrency rule, which includes 30% tax and 1% TDS on VDA, is expected to be implemented from April 1, 2022.
Investors need to pay a 30% tax for every gain they make, while for losses, the tax is not deductible from the final taxation amount. “If you have made losses with ETH (Ethereum), you cannot sell it off with your profits in ADA (cardano). This step will also cut down the small percentage of miners in the country because of the high tax rates and electricity charges,” said Edul Patel, CEO and Co-founder of Mudrex. The crypto community opines that taxes imposed by the government are quite harsh for the VDA industry, and that this will lead to a decline of the blockchain industry in India.
“This will discourage a lot of investors as it increases their risk and decreases the end reward. This would disincentivize them from trading with Indian exchanges and deal only with foreign exchanges or decentralised exchanges,” said Bhagaban Behera, CEO and Co-founder of Defy. The Minister of State for Finance also said that cryptocurrencies are unregulated in India.
Ashish Singhal, Co-founder and CEO, CoinSwitch said that 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.
The budget recognised VDAs as an emerging asset class. Therefore, a natural course of action would have been to progressively bring the regulations at par with other asset classes. Instead, today, with this clarification, we have taken a step backwards, he added.