Loss from one crypto asset cannot be adjusted with gains from another

The government had clarified the crypto taxation provisions introduced in Budget 2022. As per the new law on crypto taxation, the taxpayer has to pay 30% tax on the income earned from the transfer of crypto assets. No deductions are allowed to be taken from the income except the acquisition cost.

However, there was still some confusion about calculating the gains or losses from the transfer of cryptocurrency. In response to the question in Lok Sabha about the same, the government had clarified that the taxpayer should not consider the infrastructure cost incurred for mining cryptocurrencies as a cost of acquisition. Such infrastructure costs will be treated as a capital expenditure. As per the income tax law, capital expenses are not allowed to be deducted from income.

The government had further clarified the treatment of losses incurred from cryptocurrency transfers. As per the new Section 115BBH inserted in the Income Tax Act, the taxpayers are not allowed to set off losses incurred on the transfer of virtual digital assets (VDA) against income computed from any other provisions of this Act. However, it was not clear whether intra-VDA set-off of losses is allowed or not? For the same, it is clarified that losses incurred from the transfer of one class of VDA cannot be adjusted with the income from the transfer of another class of VDA.

For example, If there is a loss of Rs 1,00,000 by trading in Bitcoin and simultaneously you have earned income of Rs 1,25,000 from the transfer of Non Fungible Tokens, you have to pay 30% tax on Rs 1,25,000. 

If the losses from one VDA had been allowed to be offset with another VDA, you would have paid 30% tax only on the net income of Rs 25,000.

Hence, the investors will have to treat each virtual digital asset separately for income tax. The government may further bring clarity on other aspects of crypto taxation. Also, the regulatory framework to govern cryptocurrencies is still awaited from the government.

For any clarifications/feedback on the topic, don’t hesitate to contact the writer at namita.shah@cleartax.in.

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