Just a week before the new cryptocurrency tax laws are to be implemented in India, their crypto tax policy has gotten even more complicated. Some queries regarding the new tax policies that would be applicable on virtual digital assets were answered in a new parliamentary note and it suggests that traders will not be able to offset the losses they incur from one digital asset against the profits they make via another. The new crypto tax policy is scheduled to go into effect on April 1stand a number of experts have said that the latest clarification that the government has provided is not good news for traders.
The clarification indicates that the government wants traders to consider each investment into a digital and the profit and loss they incur from it independently under the new crypto tax rules. For instance, if someone invests $100 in Bitcoin (BTC) and Ether (ETH) each and they generate a $100 profit on the former and $100 loss on the latter, then they would have to pay 30% tax on the profit without taking the loss into account. Nischal Shetty, the founder of WazirX, stated that the new tax policy was ‘unbelievable’ and regressive, but is hopeful that the government will make changes to it.
He stated that the government would only discourage crypto participation if they treat profits and losses of every crypto pair separately and this would impact the growth of the industry. He said that this would be very unfortunate, so the government should reconsider its stance. Not only is the treatment of every crypto pair separately being criticized in the new policy, there is another issue. There is also the 1% tax that will be applicable on every transaction at source and crypto entrepreneurs as well as exchanges are not happy with it. The latter believe that it would have a negative impact on liquidity.
NaimishSanghvi, a crypto entrepreneur, stated that traders should sell all their crypto holdings by March 31st, 2022 and then take a fresh start from April 1st, 2022. No regulatory framework has been developed for the crypto industry in India, even though the government has been giving assurances about this matter since 2018. Many were hoping that the introduction of a tax policy for crypto would provide some legitimacy to the industry. However, the finance ministry has said that only after a crypto bill is passed that digital currencies would have any legal status in the country.
As for the crypto tax laws that have been developed, they appear to be inspired by the lottery and gambling tax laws applicable in India. It seems that the government has chosen to take the same approach for dealing with the crypto industry. Countries like South Korea and Thailand have also imposed similar high crypto taxes, but these policies have resulted in failure because the government understood that it would throttle the growth of the industry. South Korea postponed its policies, while Thailand offered exemptions to crypto traders on the tax applicable on authorized exchanges.