Income tax on crypto assets: Govt makes big announcement on deduction

In the Budget 2022, the government proposed to levy income tax on crypto assets. It was proposed that from April 1, a 30 per cent I-T plus cess and surcharges would be levied on such transactions in the same manner as it treats winnings from horse races or other speculative transactions.

The government has stated that infrastructure costs incurred in the mining of cryptocurrencies or any virtual digital assets will not be allowed as deductions under the Income Tax Act.

In the Budget 2022, the government proposed to levy income tax on crypto assets. It was proposed that from April 1, a 30 per cent I-T plus cess and surcharges would be levied on such transactions in the same manner as it treats winnings from horse races or other speculative transactions.

Nangia Andersen LLP Partner Sandeep Jhunjhunwala said since intra-head adjustment of losses, ie. set-off of loss arising from one VDA with the income from another VDA would not be permitted, such losses would be a sunk cost for the investors, causing a double whammy paying taxes on gains and no offset of losses, according to a PTI report.

"This would lead to a situation where losses, say on account of transaction in altcoins (one VDA class) would not be permitted for set-off against gains on another VDA class, say any other programmable token or bitcoin," he was quoted as saying by PTI.

Disallowance of infrastructure cost incurred in mining cryptocurrencies costs, as a permissible revenue expenditure, would further increase the cost of mining these assets, Jhunjhunwala added.

Rohinton Sidhwa, Partner, Deloitte India said the mining expense disallowance is unlikely to impact the majority of traders, however, the prevention of offset between different cryptos will probably negatively impact many traders.

The Budget 2022-23 also proposed a 1 per cent TDS on payments towards virtual currencies beyond Rs 10,000 in a year and taxation of such gifts in the hands of the recipient.