In a rather disappointing move for crypto enthusiasts and trading platforms, the government clarified that the losses incurred from one kind of virtual digital assets could not be set off against the gains from any other transactions involving another VDA during tax computation. This implies that investors will now have to pay over 30% tax for every profit they make; however, the losses are not deducted from the final taxation amount when trading in different tokens.
Crypto Tax In India: Understanding the tax clarification
In layman’s terms, when you earn profits on one token but lose on the other, as per this new information, you are still obligated to pay 30% tax of the profited token. If you’ve incurred losses in one asset class, it cannot be set off against income from another type of asset. Therefore, crypto investors will now have to treat each virtual asset as a different entity for taxation.
For example, if an investor has earned 1 lakh from the sale of one class of asset and simultaneously incurred losses worth 50k from another class of asset, the investor will have to pay 30% tax on the 1 lakh profit from the class asset and the loss of 50k from another class asset cannot be set off. However, if the losses of one class of asset were allowed to set off against gains of another class, the investor would have had to pay tax only on the net profit of 50k.
Termed as a highly discouraging move by the crypto community, these new steps can hinder the growth of the crypto ecosystem in the country, which is currently experiencing a massive spike in the country. Now, crypto investors will have to book every VDA as a separate asset with its own set of profits and losses booked independently. This move could have been undertaken to prevent the unaccounted VDA swaps. And with the current move of CBDCs, these steps would eventually ease us since the on-chain records of profits/losses will then be available for taxation purposes.
The country awaits a full-fledged crypto legislation
As said by the Finance Minister, Nirmala Sitharaman, while explaining the Union Budget 2022-23, India currently awaits crypto legislation where the government will keep track of all the crypto movements in the country and levy tax on it as well. The government firming its status on the taxes on cryptocurrency, the regulatory framework is still unclear to the mass.
Some contemplate that the taxes imposed by the Indian government are pretty harsh for VDAs and would discourage a lot of investors as it increases risks of income loss and diminishes the value of the end reward. This move is highly detrimental for the crypto community, which will now drive to the grey market for crypto-led investments.