Taxation of virtual digital assets or “crypto tax” as proposed in the Union Budget 2022-23 is set to begin on April 1, following the Lok Sabha’s passage of the Finance Bill, 2022 on Friday. Additionally, the Lok Sabha passed amendments to the Finance Bill, 2022, clarifying the taxation of virtual digital assets.
The Bill’s Section 115BBH addresses the taxation of virtual digital assets. Clause (2)(b) prohibits loss on crypto-asset trading from being deducted from income under “any other provision” of the IT Act.
The term “other” is eliminated in the amendment. Additionally, under the amended law, losses on crypto-assets cannot be offset against gains on crypto assets.
According to industry leaders the proposed 30% tax, regardless of whether crypto-assets are considered capital assets or not, will be detrimental to the industry’s recent investor growth.
According to Nischal Shetty, the founder and CEO of cryptocurrency exchange WazirX, the change eliminates day traders’ ability to save on taxes, even if they are not currently in the income tax brackets.
Shetty also believes that prohibiting investors from offsetting losses on one crypto trading pair with gains on another will further discourage crypto participation and stifle industry growth.
Shetty stated that the new regulation would not achieve the government’s objectives.
He also said that the move could result in cascading participation on Indian exchanges that adhere to KYC standards, resulting in an increase in capital outflow to foreign exchanges or exchanges that are not KYC compliant.
“This is not advantageous for the Indian government or the country’s crypto ecosystem,” he said.