The government has clarified that loss from the transfer of virtual digital assets (VDA) will not be allowed to be set off against the income arising from transfer of another VDA while computing the total income and the tax liability. Crypto-currency comes under the definition of virtual digital assets introduced by the Finance Bill, 2022.
It is also clarified that infrastructure costs incurred in the mining of VDA (eg. crypto assets) will not be treated as the cost of acquisition as the same will be in the nature of capital expenditure which is not allowable as a deduction as per the provisions of the Income-tax Act, 1961 (‘Act’).
This clarification was given by the Minister of State for Finance Shri Pankaj Chaudhary in response to a question raised in the Parliament (Loksabha) on 21st March, 2022.
Member of Lok Sabha Karti P Chidamabaram raised the following questions for a reply from the Finance Ministry-
(a) the current legal status of cryptocurrency in India;
(b) whether infrastructure costs incurred in mining cryptocurrencies are to be treated as cost of acquisition and are therefore permissible deductions;
(c) if so, the details thereof?
(d) while losses incurred due to the transfer of virtual digital assets cannot be set off against any other income, whether the losses arising from the sale of one virtual digital asset can be set off against the gains arising from another virtual digital asset; and
(e) if so, the details thereof?
Shri Chaudhary has given the following point-wise reply and thus further clarified the position of taxation of crypto-currency in India-
(a): Currently, Cryptocurrencies are unregulated in India.
(b)&(c): Finance Bill, 2022 (the Bill) has proposed to insert section 115BBH to the Income-tax Act,1961 (the Act) to provide for taxation of income from transfer of virtual digital assets (VDA). As per the proposed section, any income from transfer of VDA shall be taxed at the rate of 30%. 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 Bill also proposes to define VDA. If any asset falls within the proposed definition, such virtual asset will be considered as VDA for the purposes of the Act and other provisions of the Act will apply accordingly. As per the proposed provisions of section 115BBH, infrastructure costs incurred in mining of VDA (eg. crypto assets) will not be treated as cost of acquisition as the same will be in the nature of capital expenditure which is not allowable as deduction as per the provisions of the Act.
(d)&(e): As per the provisions of the proposed section 115BBH to the Income-tax Act,1961 (the Act), loss from the transfer of VDA will not be allowed to be set off against the income arising from transfer of another VDA.
Finance Bill, 2022 has inserted a new section 115BBH in the Act to provide for a special rate of tax on the income from transfer of crypto assets. Further, a new clause (47A) is proposed to be inserted in the definition section 2 of the Act to define virtual digital assets which cover crypto-currency.
The Finance Minister while presenting the Union Budget 2022 announces a special rate of 30% tax on the income from transfer of crypto assets. It was announced that no deduction in respect of any expenditure or allowance shall be allowed while computing such income except the cost of acquisition.
Further, it was also announced that loss from the transfer of virtual digital assets cannot be set off against any other income. The Bill also proposes TDS on payment made in relation to the transfer of virtual digital assets at the rate of 1 per cent above a monetary threshold.
However, experts were of the opinion that if there is loss from crypto 1 and there is loss from crypto 2, the same will be allowed to be set-off in the absence of any express provision in the law. The net result of crypto loss will not be allowed to set-off with any other income.
With this clarification, losses incurred from one kind of virtual digital assets (VDAs) cannot be set off against the gains from any transaction involving another VDA while computing tax.
Despite this clarification, a suitable amendment is required in the law else it will invite unwanted litigation.
It is interesting to note that the definition clause of VDA will take effect from April 2022 but the special rate of tax under section 115BBH will be applicable from AY 2023-24. Further, the TDS provisions on VDA will be applicable from 1st July 2022.
It seems to be some drafting error in section 115BBH which makes it applicable from 01.04.2023. A suitable government amendment in the Finance Bill, 2022 on this issue is expected.
0 Comments