The Indian crypto tax policy became highly complicated barely a week before the new tax laws are set to come into effect. In that context, a new parliamentary note answering queries about new tax policies on various virtual digital asset (VDA) indicate that the traders cannot offset their losses from one digital asset against a profit on another.
India’s government wants to treat every crypto trading pair transaction separately, deterring the traders as the government would just tax their profits without accounting for the losses. With the new tax policy waiting for April 1 to come into effect, most experts allege that the latest clarification from the government is now a death knell for the traders.
The crypto tax policy of the government expects the traders to treat all investments and profit/loss on a digital asset independently. For instance, in case a trader invests $100 each in Ether and Bitcoin, and they incur a profit of $100 on Ether and a loss of $100 on Bitcoin, the trader would have to pay 30% tax on the Ether profits without accounting for the losses on Bitcoin.
Nischal Shetty, the WazirX founder, referred to the tax policy as regressive and unbelievable while hoping that the government eventually changes its stand. He said:
“Treating profits and losses of each market pair separately will discourage crypto participation and throttle the industry’s growth. It’s very unfortunate, and we urge the government to reconsider this.”
Besides the latest burden of treating every crypto trading pair independently, the 1% tax deduction at source (TDS) on every transaction is also being heavily criticized by cryptocurrency entrepreneurs and most exchanges, as they think that it would dry up liquidity.
Crypto entrepreneur Naimish Sanghvi indicated that traders need to sell everything that they have before March 31, 2022, and begin afresh from April 2022.
My suggestion to sell off everything applies to those who are in overall profit. That way you can still offset your losses with profits before March 31.
If you’re only in profit, or only in loss across all your investments, then it’s wise to just hold! https://t.co/4RxKH8xKOT
— Naimish Sanghvi (@ThatNaimish) March 21, 2022
For now, India is yet to finalize a regulatory infrastructure for the crypto sector despite many assurances by the government since 2018. While most of them hoped the introduction of taxes would offer some type of legitimacy to the crypto space, the finance ministry made it quite clear that the sector would gain any legal status just after the passing of the cryptocurrency bill.
The cryptocurrency tax policy itself appears to be inspired by the nation’s gambling/lottery tax laws which somehow reflect the government’s strategy towards the crypto industry.
Seems like, Idea for crypto tax policy came from here. pic.twitter.com/wuUaWQxU2f
— Aditya Singh (@CryptooAdy) March 16, 2022
Nations like South Korea and Thailand have also proposed a similar high cryptocurrency tax, but these policies failed as the government believed it would hinder the growth of the budding market. Korea was forced to postpone its 20% crypto tax while Thailand exempted traders from paying 7% value-added tax on authorized exchanges.