Crypto tax clarification, "detrimental for India's crypto industry"The government's clarification of disallowing losses incurred in a particular digital asset to be set off against income from another version of a crypto holding is "detrimental for India's crypto industry and the millions who have invested in this emerging asset class," said Ashish Singhal, Co-founder and CEO of CoinSwitch, one of India's top crypto exchange.The government won't allow tax breaks on infrastructure costs incurred.
At the same time, mining of crypto assets won't be treated as a cost of acquisition, Minister of State for Finance Pankaj Chaudhary told lawmakers in parliament on Monday.The clarification by the minister is a further setback to an industry that was slapped with a steep tax rate of 30 per cent on gains from digital assets' transactions in the budget unveiled last month.The Reserve Bank of India and the government are sceptical about the sector despite a rise in trading volumes as it fears digital currencies can be used for money laundering, terrorist financing and price volatility."This is detrimental for India's crypto industry and the millions invested in this emerging asset class.
We fear the lack of provision to offset losses will drive away users from KYC-compliant exchanges and platforms to the underground peer-to-peer grey market, which would defeat the purpose of the tax," said Mr Singhal.The budget recognised virtual digital assets (VDAs) as an emerging asset class.
Therefore, a natural course of action would have been progressively bringing the regulations at par with other asset classes.
Instead, today, we have taken a step backwards with this clarification.
If a regressive provision such as this had been applicable in equities, it would have discouraged retail investors from participating," he added.India's crypto-asset tax regime will gradually roll out in the financial year starting April 1.
Provisions on the 30 per cent tax will be effective at the start of the fiscal year, while those related to the 1 per cent Tax Deducted at Source (TDS) will come into effect from July 1, 2022.There is a bill still pending on cryptocurrencies' regulations.While the RBI has made clear its reservations and, in repeated messages, has said it was in favour of a complete ban, the government has delayed the cryptocurrency and digital assets legislation, which has been in the works for well over a year.In its current form, the Cryptocurrency and Regulation of Official Digital Currency Bill aim to ban all cryptocurrencies as a payment method in India, barring a few private coins to promote underlying technologies, even as it allows the Reserve Bank of India to set up an official digital currency.However, the government had previously said it aims to promote underlying technologies such as blockchain.
Industry experts, too, opine that reforms to the bill with more comprehensive consultations can take India to the forefront of blockchain tech.Finance Minister, in her budget, announced the RBI would introduce the digital rupee within the following year.The draft had also suggested a crackdown on cryptocurrency advertisements, which authorities say mislead the public.
A private body announced disclaimers would be a must for risky crypto advertisements.But the number of digital assets investors has surged in India; most are still hopeful and expect the final bill to provide more flexibility than a complete ban.Investors and top cryptocurrency exchanges currently operating in India also welcomed the plans to regulate the crypto market and formally help develop underlying technologies.Experts have also said the delay in India's cryptocurrency legislation is justified because of its complexity and impact on broader financial markets.Still, the latest clarification on the digital assets' tax that the government won't allow tax breaks on infrastructure cost incurred while mining of crypto assets as it won't be treated as a cost of acquisition is a further setback to an industry that was slapped with a steep tax rate last month.