In a written reply to the Lok Sabha, Chaudhary said the government will come up with a definition of virtual digital assets (VDA) with a view to levying a 30 percent tax on income from the transfer of such assets.
Infrastructure costs incurred in mining cryptocurrencies or virtual digital assets are not allowed as a deduction under the Income Tax Act, Finance Minister Pankaj Chaudhary said Monday.
In a written reply to the Lok Sabha, Chaudhary said the government will come up with a definition of virtual digital assets (VDA) with a view to levying a 30 percent tax on income from the transfer of such assets.
Also, loss from the transfer of VDA should not be offset against the income arising from the transfer of another VDA, Chaudhary said.
He also said that cryptocurrencies are currently not regulated in India.
The Budget 2022-23 has clarified the levy of income tax on crypto assets. As of April 1, 30 percent IT plus taxes and fees will be levied on such transactions in the same way as horse racing profits or other speculative transactions.
The minister said that when calculating the income from the transfer of VDA, no deduction of expenses (other than acquisition costs) or fees is allowed.
“The (Finance) bill also proposes to define VDA. If an asset falls within the proposed definition, such virtual asset will be considered a VDA for the purposes of the law and other provisions of the law will apply accordingly,” he said.
Furthermore, he said that “infrastructure costs incurred in mining VDA (e.g. crypto assets) are not treated as acquisition costs, as will be the same in the nature of capital expenditures”, which is not permissible as a deduction under the IT law.
Nangia Andersen LLP Partner Sandeep Jhunjhunwala said since intra-head adjustment of losses, ie. set-off of losses arising from one VDA against the income from another VDA would not be allowed, such losses would be a sunk cost for the investors, with a double whammy: paying tax on profits and not carrying losses.
“This would lead to a situation where losses, for example due to transactions in altcoins (one VDA class) should not be offset against gains on another VDA class, say another programmable token or bitcoin,” he said.
Not allowing infrastructure costs incurred in mining cryptocurrencies, as permitted revenue expenditures, would further increase the cost of mining these assets, Jhunjhunwala added.
Rohinton Sidhwa, partner of Deloitte India, said the rejection of mining fees is unlikely to affect the majority of traders, but preventing offsetting between different cryptos is likely to negatively impact many traders.
The 2022-23 budget also proposed a 1 percent TDS on payments to virtual currencies above Rs 10,000 in a year and taxation of such gifts in the hands of the recipient. The threshold for TDS would be Rs 50,000 per year for certain individuals including individuals/HUFs who are required to have their accounts audited under the IT law.
The provisions regarding 1 percent TDS will come into effect from July 1, 2022, while profits will be taxed from April 1.
Separately, the government is working on legislation to regulate cryptocurrencies, but no draft has been made public yet.
This post Crypto Mining Fees Cannot Be Deducted Under IT Law, Treasury Department Says was original published at “https://www.financialexpress.com/digital-currency/crypto-mining-cost-not-to-be-allowed-as-deduction-under-i-t-act-finance-ministry/2466894/”
