Crypto mining cost or loss in Crypto not to be allowed as deduction under Income Tax Act

Crypto tax on gains but no deductions on losses incurred, says Government of India

Crypto tax on gains but no deductions on losses incurred, says Government of India
Crypto tax on gains but no deductions on losses incurred, says Government of India

Govt of India clarifies a straight tax of 30% for profit

The Government of India on Monday informed Parliament that no kind of deduction or loss or mining cost is allowed to deduct in taxing profit from CryptoCurrency trade. Infrastructure costs incurred in the mining of cryptocurrencies or any virtual digital assets will not be allowed as deduction under the income tax act, Minister of State for Finance Pankaj Chaudhary said on Monday.

In a written reply to the Lok Sabha, Chaudhary said the government will come out with a definition of Virtual Digital Assets (VDA) with a view to levying 30 percent tax on income from the transfer of such assets. He said currently cryptocurrencies are unregulated in India, but liable to be taxed at 30% of the profit. The recent Budget has brought in clarity concerning the levy of income tax on crypto assets. From April 1, a 30 percent I-T plus cess and surcharges, will be levied on such transactions in the same manner as it treats winnings from horse races or other speculative transactions. Union Finance Minister Nirmala Sitharaman reiterated earlier on putting a 30% tax on the profits earned from cryptocurrency trade in India, though the Government is not legalizing the crypto trades.

Junior Minister of Finance Chowdhary said while computing the income from transfer of VDA, no deduction in respect of any expenditure (other than the cost of acquisition) or allowance is allowed. “The (Finance) Bill also proposes to define VDA. If any asset falls within the proposed definition, such virtual asset will be considered as VDA for the purposes of the Act and other provisions of the Act will apply accordingly,” he said.

He further said “infrastructure costs incurred in the mining of VDA (e.g. crypto assets) will not be treated as the cost of acquisition as the same will be in the nature of capital expenditure”, which is not allowable as a deduction under the I-T Act. Also, loss from the transfer of VDA will not be allowed to be set off against the income arising from the transfer of another VDA.

The Budget 2022-23 also proposed a 1 percent TDS on payments towards virtual currencies beyond Rs.10,000 in a year and taxation of such gifts in the hands of the recipient. The threshold limit for TDS would be Rs.50,000 a year for specified persons, which includes individuals/HUFs who are required to get their accounts audited under the I-T Act.

The provisions related to 1 percent TDS will come into effect from July 1, 2022, while the gains will be taxed effectively from April 1. Separately, the Government is working on legislation to regulate cryptocurrencies, but no draft has yet been released publicly.

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