Crypto tax: Government clarifies that losses cannot be set off between trades of different tokens

moneycontrol.com:

In a setback for crypto investors and trading platforms, Minister of State for Finance Pankaj Chaudhary said in the Lok Sabha on March 21 that losses incurred from virtual digital assets (VDAs) cannot be set off against the gains from another VDA transaction while computing tax.

Since Finance Minister Nirmala Sitharaman announced a hefty 30 percent tax on gains from VDAs in the Budget, which includes gains from crypto trading, the industry as well as investors were awaiting clarity on how exactly the taxation will work.

The answer was given in response to queries by Member of Lok Sabha Karti P Chidamabaram.

MoS Finance Chaudhry said, "As per the provisions of the proposed section 115BBH to the Income Tax Act, 1961, loss from transfer of VDA will not be set off against the income arising from transfer of another VDA."

The clarification in the Lok Sabha means that investors will have to pay a 30 percent tax for every gain they make and losses are not deductible from the final taxation amount.

For example, if an investor has earned Rs 1,000 in one crypto trade involving Token A and incurred losses worth Rs 400 in another trade involving Token B, they still have to pay a 30 percent tax on the Rs 1,000 profit. In a scenario where losses would have been allowed to set off against gains from other tokens as well, the investor would have had to pay tax only on the net Rs 600.

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Along with the 30 percent tax which will be applicable starting April 1, 2023, and the taxes will be levied from the assessment year FY24, the government has also proposed a 1 percent tax deduction at source (TDS) which will ensure a KYC process requirement for trading as well