The cryptocurrency industry is pressing the government to reconsider its recent clarification on how crypto taxes would function, describing the new measures as “market-disruptive.”
The cryptocurrency industry is pressing the government to reconsider its recent clarification on how crypto taxes would function, describing the new measures as “market-disruptive.” The reaction comes after the Minister of State for Finance Pankaj Chaudhary stated in Parliament that losses from one type of cryptocurrency cannot be offset by gains from another cryptocurrency transaction.
“Treating each market pair’s earnings and losses individually will discourage crypto participation and stifle the industry’s growth.” It’s a pity, and we encourage the government to rethink,” WazirX CEO Nischal Shetty said in a statement.
He also used his Twitter name to demonstrate how these crypto taxes would work. If a customer invests Rs 100 in Coin 1 (for example, Bitcoin) and Rs 100 in Coin 2 (for example, Ethereum), their total investment is Rs 200. Now, if they make a profit of Rs 100 in Coin 1 and lose Rs 100 in Coin 2, they will still have to pay 30% of the profit in Coin 1 because the government does not allow balancing the loss in Coin 2. As a result, a user will end up with Rs 170, which is a loss.
With an example on his Twitter handle, he also demonstrated how these crypto taxes might function. If a customer invests Rs 100 in Coin 1 (for example, Bitcoin) and Rs 100 in Coin 2 (for example, Ethereum), their total investment will be Rs 200. Now, if they make a profit of Rs 100 in Coin 1 and lose Rs 100 in Coin 2, they will still be required to pay 30% of the Coin 1 profit because the government does not allow balancing the Coin 2 loss. As a result, a user will end up with Rs 170, a loss.
According to Ashish Singhal, co-founder, and CEO of cryptocurrency exchange CoinSwitch, this development is detrimental to India’s crypto industry and the millions of people who have invested in this emerging asset class, as it will drive users away from KYC-compliant exchanges and platforms and into the underground peer-to-peer grey market, defeating the tax’s purpose. “Virtual digital assets (VDAs) were identified as an emerging asset class in the Budget. As a result, it would have been logical to gradually bring the restrictions in line with those of other asset types. Instead, we’ve taken a step backward today with this clarification. “If a regressive provision like this had been in place in stocks, regular investors would have been discouraged from engaging,” Singhal added.
The action, according to CEO Sathvik Vishwanath, is “a negative step for investors and the sector.” The tax-structure pronouncements “look to be restrictive and may disincentivize investors in the long run,” according to Ashish Kumar, General Partner of Fundamentum Partnership.
The action was described as “regressive” by Anshul Dhir, co-founder, and COO of EasyFi Network. “Not only will this deter people from working in the web3.0 field, but it will almost certainly result in an exodus of smart and skilled entrepreneurs from the country.” Part of it has already started. While imposing a tax on crypto revenues was a good idea, he believes that not allowing losses to be offset will “practically kill the sector” because it “does not help the market’s serious proponents.”
Meanwhile, the government stated that under the Income Tax Act, infrastructure costs spent in the mining of cryptocurrencies or other virtual digital assets will not be allowed as a deduction.
“Infrastructure costs incurred in the mining of VDA (e.g. crypto assets) will not be considered as the cost of acquisition since they will be capital expenditure, which is not authorized as a deduction under the I-T Act,” Chaudhary explained.