The government said in a Lok Sabha parliamentary response on Monday that cryptocurrency investors wouldn’t be able to set off losses incurred on their investments against taxes they have to pay.
The clarification came in response to Indian National Congress leader Karti P Chidambaram’s query in the Lok Sabha.
“Further, while computing the income from transfer of VDA, no deduction in respect of any expenditure (other than cost of acquisition) or allowance is allowed,” the government said, adding that the costs for ‘mining’ cryptocurrencies (which requires a lot of electricity and computing resources) would also not be able to be set off against such tax liabilities.
Cryptocurrency exchange CoinSwitch complained about the interpretation in a statement emailed to reporters. “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,” CoinSwitch CEO Ashish Singhal said.
Singhal said that the recent Union Budget — which placed a tax on cryptocurrencies without quite legalizing them — recognized Virtual Digital Assets (the government’s blanket term for cryptocurrencies, NFTs and other such virtual commodities) as an “emerging asset class,” and as such should be regulated similar to retail investing.
The move is a setback for crypto exchanges, who may find their users more hesitant to invest if they may have to pay higher taxes even if their gains from trading in cryptos is outweighed by losses.
“Currently, cryptocurrencies are unregulated in India,” the government said in its Lok Sabha response.
As of now, it is clear that short of banning cryptos, the government is intent on extracting a high rent out of any trading of virtual assets, with absolutely no leeway for the special situation cryptos involve, be it in terms of mining costs for some, or any sort of set offs. The closest analogy that comes to mind is perhaps, cigarettes, where while being allowed to operate (i.e., legal), high taxes, stark warnings on the cover and more restrictions are used to ensure that the market doesn’t grow anymore. Till someone convinces the government that cigarettes are good for smokers. Crypto, at this stage, faces a similar challenge in India.
Correction (March 22nd): An earlier version of this piece misidentified the person who submitted this question as P Chidambaram. It was his son, Karti P Chidambaram. We regret the error.