Tax policy regarding cryptocurrencies in India has become more complicated just a week before the new tax legislation came into force. A new memorandum to the European Parliament, answering questions about the new tax policy on virtual digital assets, states that traders cannot offset their losses on a digital asset with other profits.
While the new tax policy is expected to come into effect on April 1, many experts say the government’s latest clarification was the death knell for traders. The government’s tax policy on cryptocurrencies assumes that traders will consider each investment and profit/loss on a digital asset independently.
For example, if a trader invests $100 in Bitcoin (BTC) and Ether (ETH) and makes a $100 profit on Ether and a $100 loss on Bitcoin, then the trader must pay a 30% tax on profits from Ether without taking into account losses to bitcoin.
WazirX founder Nishal Shetty called the tax policy regressive and “incredible” but still hopes the government will change its mind. He told Cointelegraph:
“Calculating the profit and loss of each market pair individually will negate the participation of cryptocurrencies and limit the growth of the industry. This is very unfortunate and we urge the government to reconsider this.”
Apart from the recent burden of dealing with each cryptocurrency pair individually, the 1% tax deduction at the source of each transaction has also been criticized by crypto entrepreneurs and especially the equity markets as they believe it will drain liquidity.
Crypto founder Naimish Sangvi suggested that traders sell everything they have before March 31, 2022, and start fresh from April 2022.
India has yet to finalize a regulatory framework for the crypto industry despite numerous government assurances since 2018. While many hoped that taxation would provide some legitimacy to the crypto industry, the Treasury Department clarified that the industry would only benefit from legal status once the Cryptocurrency account was adopted.