Government stance on crypto taxation surprising, say tax experts

Tax experts are a surprised lot after the government announced that while gains from crypto transactions will be taxed at 30 per cent, any losses arising from one crypto asset will not be allowed to be set-off against profits in another. 

"We have a situation of losses and gains being sort of treated as separate pots. In substance really, if you are taxing something at 30 per cent, why would you not allow losses under other heads also to be set off within the same year also beats us," said Dinesh Kanabar, CEO of Dhruva Advisors, while speaking at the Business Today Crypto Conclave. 

In a similar context, Mukesh Butani, founder and managing partner of BMR Legal, said that while it is right for the government to tax an income that has been untaxed till now, the approach seems to be creating a perception that cryptos lead to unaccounted income. 

"My problem with the basis on which you are implementing it is that there seems to be an element of perception associated with crypto, something that stinks," said Butani in a session titled, 'Taxing Cryptos: Need for Clarity'. 

"I don't think that is the correct approach. It's one thing to say that the government has a stated public policy that it would discourage unaccounted income. And somewhere, there seems to be a perception that a crypto transaction results in unaccounted money," he added. 

The perception element was highlighted by L Badri Narayanan, executive partner at Laxmikumaran & Sridharan, as well when he said that the statement from the government hints that it treats this as speculative income. 

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"I think we can't run away from the fact that the government at least perceives this to be speculative income and the way they're trying to tax it is very much what you put in place for a speculative regime of tax," said Badri. 

"So that taint of cryptocurrency being associated with issues which can have an impact on national security, which does not have any basis and therefore is purely based on demand and supply, which can be manipulated, and that the large number of retail customers could potentially have issues in the event that these markets are manipulated. I think that is definitely (a perception)," he added. 

On Monday, Minister of State in Finance Ministry, Pankaj Chaudhary, clarified during the Lok Sabha session that no deductions and set-offs are available for crypto taxes. 

Further, losses from transfer of one virtual digital asset (VDA) will not be allowed to be offset against income from transfer of another VDA, and the infrastructure costs incurred in mining of VDA will not be treated as cost of acquisition and, hence, will not be liable to the tax deductions. 

This assumes significance as India has taken a stance which is vastly different from other countries where cryptos have gained popularity. 

International tax attorney Selva Ozelli, during the panel discussion, highlighted the fact that countries like Singapore and Portugal do not impose any capital gains tax on crypto transactions, while the US treats them like investments. 

"Crypto is not any different from any other investment in that way. And India, of course, will find the right balance. They are progressive, they're going to be adopting a central bank issued digital currency. They have a flourishing crypto industry and a lot of tech brain power in India. So every country will find the best way," she said. 

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