The government’s clarification of forbidding losses incurred in a specific digital asset to be set off against income from another version of a crypto holding is detrimental for India’s crypto industry as well as the millions who have invested in this growing asset class, according to Ashish Singhal, Co-founder, and CEO of CoinSwitch, one of India’s top crypto exchanges.
The government will not allow tax breaks on infrastructure expenditures incurred. Simultaneously, mining of crypto assets will not be treated as a cost of acquisition, according to Minister of State for Finance Pankaj Chaudhary, who spoke to lawmakers in parliament on Monday.
The minister’s clarification is a further setback for an industry that was hit with a steep tax rate of 30% on gains from digital asset transactions in the budget released last month.
Despite an increase in trading volumes, the Reserve Bank of India and the government remain skeptical of the sector, fearing that digital currencies will be used for money laundering, terrorist financing, and price volatility.
This is detrimental to India’s crypto industry and the millions of dollars invested in this emerging asset class; we fear that the lack of provision to offset losses will drive users away from KYC-compliant exchanges and platforms and into the underground peer-to-peer grey market, defeating the purpose of the tax, Mr. Singhal said.
Virtual digital assets (VDAs) were identified as an emerging asset class in the budget. As a result, a natural course of action would have been to gradually bring the regulations in line with other asset classes. Instead, with this interpretation, we have taken a step backward. If a regressive provision like this had been applicable in equities, retail investors would have been discouraged from participating, he added.
India’s crypto-asset tax regime will progressively roll out in the fiscal year beginning April 1. Provisions relating to the 30% tax will take effect at the start of the fiscal year, while those relating to the 1% Tax Deducted at Source (TDS) will take effect on July 1, 2022.
A bill to regulate cryptocurrencies is still pending.
While the RBI has made evident its reservations and stated repeatedly that it supports a total ban, the government has postponed the cryptocurrency and digital assets legislation, which has been planned for well over a year.
The Cryptocurrency and Regulation of Official Digital Currency Bill, in its current form, seeks to ban all cryptocurrencies as a payment method in India, except for a few private coins to promote underlying technologies, while also allowing the Reserve Bank of India to establish an official digital currency.
However, the government had previously said it aims to promote underlying technologies like blockchain. Industry experts agree that amending the bill with more extensive consultations can propel India to the forefront of blockchain technology.
The Finance Minister announced in her budget that the RBI would introduce the digital rupee the following year.
The draft also proposed a crackdown on cryptocurrency advertisements, which authorities claim mislead the public. A private organization announced that disclaimers would be required for risky cryptocurrency advertisements.
However, the number of digital asset investors in India has increased; most are still optimistic and expect the final bill to provide more flexibility than a complete ban.
Investors and top cryptocurrency exchanges in India have also welcomed the plans to regulate the crypto market and formally assist in the development of underlying technologies.
Experts have also stated that the delay in India’s cryptocurrency legislation is justified due to the complexity of the issue and its impact on broader financial markets.
Still, the latest clarification on the digital asset tax, which states that the government will not allow tax breaks on infrastructure costs incurred while mining crypto assets because they will not be treated as a cost of acquisition, is a further setback for an industry that was hit with a steep tax rate last month.
