FinMin proposes to tighten cryptocurrency taxation

In a big shake-up for the cryptocurrency industrythe government recently clarified that under the 2022 Budget proposals, investors will not be able to offset losses in one crypto asset with another.

In addition, the mining infrastructure will not be eligible to be deducted as an acquisition cost.

On February 1, the government had announced a 30% tax on any income from the transfer of virtual digital assets (VDAs) or crypto assets. The tax proposal covered all emerging digital assets, including non-fungible tokens (NFTs), metaverse assets, digital currencies, and tokens, among others.

Along with the 30% tax, the 2022-23 Union Budget has also proposed a 1% TDS on the transfer of such assets.

In accordance with amendments to the Finance Bill 2022 circulated among Lok Sabha members, the ministry is proposing to remove the word "other" from the section related to compensation of profit losses in virtual digital assets.

This would mean that the loss of the VDA transfer cannot be offset by the revenue from the transfer of another VDA.

According to the Finance Bill 2022, a VDA could be a code, number or token that can be transferred, stored or traded electronically.

Tax experts were divided on whether investors could offset losses in one crypto with another crypto asset. Loss offset means adjusting losses against earnings or income for that particular year. This provision is available in stock investments.

The government in the Budget for 2022-23 provided for the first time a definition of crypto assets and established a list of proposals on the taxation of this new class of assets.

Although the budget has provided some long-awaited clarifications on the tax treatment of crypto assets, the government did not clarify whether the virtual digital assets will be a currency, a commodity, or a security.

(With PTI inputs)