The cryptocurrency industry has made a strong exception to the government's clarification on the taxation of cryptocurrencies (called virtual digital assets, VDAs). The clarification came in response to Karti Chidambaram's question in the Lok Sabha on Monday. "Under the proposed provisions of section 115BBH, infrastructure costs incurred in mining VDAs (eg, crypto assets) will not be treated as acquisition costs, as they will be in the nature of capital expenditures that are not allowed as a deduction under the provisions of the law," said Pankaj Chaudhary, Minister of State at the Ministry of Finance. In addition, the minister added that the loss from the transfer of virtual digital assets cannot be offset by the income derived from the transfer of another virtual digital asset. The industry appears to be discouraged as it believes such measures would discourage investors from participating in the emerging asset class.
It is an ongoing effort, according to Rohinton Sidhwa, a partner at Deloitte India, to isolate and discourage crypto-related activities in India. โRemoving mining charges is unlikely to affect most traders, however preventing offsetting between different cryptos will likely negatively affect many traders.โ
Nischal Shetty, CEO of WazirX, the country's largest cryptocurrency exchange, urges the government to reconsider this provision. He says: โIt is very unfortunate. Treating the gains and losses of each market pair separately will discourage participation in crypto and accelerate the growth of the industry.โ
While the industry believes the move will be detrimental to the crypto industry and the millions that have invested in this emerging asset class, Ashish Singhal, co-founder and CEO of CoinSwitch Kuber, doubts the lack of provisions to offset losses will scare away cryptocurrency. the users. from KYC-compliant exchanges and platforms to the underground peer-to-peer gray market. "It would completely defeat the purpose of the tax," he adds.
Earlier in February this year, Finance Minister Nirmala Sitharaman, during the budget for fiscal year 2023, had proposed inserting section 115BBH into the Income Tax Act 1961 to establish taxes on transfer income virtual digital assets (VDA). According to the proposed section, any income from the VDA transfer will be taxed at the 30% rate. Later, Amitabh Kant, CEO of NITI Aayog, gave more clarity, saying that the government is not banning cryptocurrencies. โOnce you start taxing, it means you will have a regulatory mechanism, whether some aspect is regulated by RBI or SEBI. The Budget provides absolute clarity. The government has not banned cryptocurrencies. In fact, it has treated cryptocurrencies as an asset class, defined as a virtual digital asset," told Fortune India in a previous interview.
The Budget recognized VDAs as an emerging asset class. Therefore, a natural course of action, according to CoinSwitch's Ashish Singhal, would have been to progressively bring regulations on par with other asset classes. Instead today, he says, "we have taken a step backwards. If a regressive provision like this had been applicable in equities, it would have discouraged retail investors from participating."
Meanwhile, most cryptocurrencies traded lower. Bitcoin, the largest cryptocurrency, was recently trading around $41,200, down almost 12% in the last 24 hours. Ethereum, the second-largest cryptocurrency by market capitalization, was trading near $2,800, down nearly 1.5% over the same period.
