Indian crypto tax policy to treat every investment in digital assets independently

India’s crypto tax policy got even more complicated just a week before the new tax laws come into effect. A new Chamber note answers to ask on the new virtual digital asset (VDA) tax policy suggest that traders cannot offset their losses from one digital asset against gains from another.

While the new tax policy waits until April 1, many experts argue that the latest government clarification is the death knell for traders. The government’s crypto tax policy expects traders to treat each investment and gain/loss on a digital asset independently.

For example, if a trader invests $100 each in Bitcoin (BTC) and Ether (ETH), and they make a $100 profit on Ether and a $100 loss on Bitcoin, then the trader would have to pay 30% tax on the profit of Ethereum without taking losses on BTC into account.

WazirX founder Nischal Shetty called the tax policy regressive and “unbelievable” while hoping the government would change its stance. He told Coin-Crypto:

“Treating gains and losses of each market pair separately will discourage cryptocurrency participation and slow down the industry’s growth. It is very unfortunate and we urge the government to reconsider.”

Aside from the last burden of treating each crypto trading pair independently, the 1% tax deduction at source (TDS) on every trade has also been criticized by crypto traders, especially exchanges, for believing it would dry up liquidity.

Crypto entrepreneur Naimish Sanghvi suggested that traders should sell everything they have before March 31, 2022 and start over from April 2022.

India has yet to finalize a regulatory framework for the crypto industry, despite several assurances from the government since 2018. While many hoped that the introduction of taxes would provide some form of legitimacy to the crypto industry, the Ministry of Finance made it clear that the industry would gain any legal status only after passing the crypto account.

Related: India’s Crypto Tax Provides Little Legal Clarity for Traders and Exchanges

The crypto tax policy itself seems to be inspired by the country’s gambling and lottery tax laws, which somewhat reflect the government’s approach to the crypto market.

Countries such as Thailand and South Korea have also proposed similarly high crypto taxes, but those policies failed because the government understood it would hinder the growth of the emerging market. Korea had to defer its 20% crypto tax, while Thailand exempted merchants from paying 7% VAT on authorized exchanges.

Leave a Comment