Indian crypto companies fear losing customers, after govt refuses to allow offsetting losses
Minister of State for Finance Pankaj Chaudhary clarified in Parliament that losses incurred from one kind of cryptocurrency cannot be offset against the gains from any transaction involving another cryptocurrency.
The government won’t allow tax breaks on infrastructure cost incurred while mining of crypto assets as it won’t be treated as cost of acquisition.
The clarification by the minister is a further setback to an industry that was slapped with a steep tax rate in the budget unveiled last month. India’s central bank 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 clarification has not come well to the Indian crypto exchanges. There is fear that the investors may prefer grey market or decentralized exchanges to avoid taxes. It will hurt the entire industry as well as the government.
Ashish Singhal, Co-founder & CEO, CoinSwitch has expressed serious concern, “This is detrimental for India’s crypto industry and the millions who have 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.”
“The Budget recognised virtual digital assets (VDAs) as an emerging asset class. Therefore a natural course of action would have been to progressively bring the regulations at par with other asset classes. Instead, today, with this clarification, we have taken a step backwards. If a regressive provision such as this would have been applicable in equities, it would have discouraged retail investors from participating,” he concluded.
Nischal Shetty, CEO, WazirX said in a statement, “Treating profits and losses of each market pair separately will discourage crypto participation and throttle the industry’s growth. It’s very unfortunate, and we urge the government to reconsider this.”
He also clarified giving an example.
Invest Rs. 100 into Coin1 Earn Rs. 100 profit
Now you have Rs. 200
Invest this Rs. 200 in Coin2, Coin2 goes to Rs. 0 (not all ideas work)
Now you have Rs. 0
Tax Time: According to upcoming tax law in India You pay Rs. 30 as tax
You are now at – Rs. 30
Anshul Dhir, co-founder and COO of EasyFi Network called the move ‘regressive’. “Not only will this discourage people in the web3.0 space, it is bound to effect an exodus of smart and talented entrepreneurs out of the country. Part of which has already begun. While a tax on crypto earnings was a good move, not allowing losses to be offset will practically kill the industry as it does not help the serious proponents of this industry,” he said.