Crypto Tax: Government Clarifies On Two Key Aspects

The government issued two key clarifications on the taxation of cryptocurrency assets or, as the Finance Bill 2022 calls it, virtual digital assets.

This came in response to Karti Chidambaram's question in the Lok Sabha on Monday. To refresh, effective April 1, any income from transfer of a virtual digital asset will be taxed at 30%. No deductions will be allowed except the cost of acquisition.

The first clarification has to do with calculation of this cost of acquisition. Specifically, whether infrastructure costs incurred in mining cryptocurrencies are to be treated as cost of acquisition, and, therefore permissible for deductions.

Such infrastructure costs will not be treated as the cost of acquisition but as capital expenditure, the Finance Ministry said in its response in Lok Sabha. No deduction for such incidental expenses will be available.

The second clarity comes on set-off provisions.

The treatment of set-off becomes important to calculate income on which 30% tax will be applicable. When the proposals were introduced last month, experts had hoped that intra-asset set-off might be available. For instance, can loss from Bitcoin be set off against profit from NFT?

Loss from the transfer of VDA will not be allowed to set off against the income arising from transfer of another VDA, the ministry said in its response.