Minister of State for Finance Pankaj Chaudhry said on Monday that the infrastructure cost incurred in mining cryptocurrencies or any virtual digital assets would not be allowed as a deduction under the Income Tax Act.
In a written response to Lok Sabha, Chaudhry said the government will come out with a definition of Virtual Digital Assets (VDA) with the goal of imposing a 30 per cent tax on income from the transfer of such assets.
Chaudhary also said, compensating the loss from one VDA transfer will not be allowed against the income from another VDA transfer.
He also said that cryptocurrencies are currently unregulated in India.
It clarifies the 2022-23 budget regarding income tax on crypto assets. Effective April 1, a 30 percent IT tax plus fees and surcharges will be levied on such transactions in the same way as winnings from horse racing or other speculative transactions.
The Minister said that while calculating the income from the VDA transfer, no deduction is allowed in respect of any expenses (other than purchase cost) or allotments.
“The (Finance) bill also proposes the definition of a VDA. If any asset falls within the proposed definition, that virtual asset will be considered as a VDA for the purposes of the law and other provisions of the law will apply accordingly,” he said.
Furthermore, he said, “The infrastructure costs incurred in mining a VDA (for example, crypto assets) will not be treated as an acquisition cost because the same cost will be in the nature of capital expenditure,” which is not allowed as a deduction under the IT Act .
Nangia Andersen LLP Partner Sandeep Jhunjhunwala said since the internal adjustment of losses, ie. The loss arising from a VDA will not be allowed to be offset with income from another VDA, and these losses will be a heavy cost to investors, causing double taxation of profits and losses not being offset.
“This would lead to a situation where losses, for example due to transactions in altcoins (one VDA class) are not allowed to be cleared against gains on another VDA class, for example any other programmable token or Bitcoin,” he said.
Jhunjhunwala added that disallowing the infrastructure cost incurred in cryptocurrency costs as an allowable revenue expenditure would increase the cost of mining these assets.
Rohinton Sidhwa, Partner at Deloitte India said that not allowing mining costs is unlikely to affect the majority of traders, however, blocking the displacement between different cryptocurrencies is likely to negatively affect many traders.
The 2022-23 budget also proposed 1 per cent tax refunds on payments towards virtual currencies in excess of Rs 10,000 per year and the taxation of such gifts in the hands of the recipient. The minimum TDS will be Rs 50,000 per year for specific persons, which includes individuals/HUFs who are required to have their accounts audited under the Information Technology Act.
Provisions regarding 1 percent of the total added tax will come into effect from July 1, 2022, while gains will be taxed from April 1.
Separately, the government is working on legislation to regulate cryptocurrency but no draft has been released publicly yet.
(The title and image for this report may have been reformulated only by the Business Standard staff; the rest of the content is automatically generated from a shared feed.)
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