Finance Ministry tightens norms for cryptocurrency taxation; proposes amendments to Finance Bill

The Central Government on March 24, 2022 proposed to tighten the rules for cryptocurrency taxation by prohibiting any losses from being offset against gains from other virtual digital assets.

According to the amendments to the Finance Bill, 2022 that have been circulated among Lok Sabha members, the Finance Ministry proposes to remove the word ‘other’ from the section relating to the set off of losses from gains in virtual digital assets.

This means that losses incurred as a result of the transfer of virtual digital assets (VDA) will not be allowed to be offset against income derived from the transfer of another VDA.

The VDAs will include popular cryptocurrencies as well as non-fungible tokens (NFTs), which have gained popularity in recent years.

According to the Finance Bill of 2022, a VDA could be a code, number, or token that can be electronically transferred, stored, or traded.

The 2022-23 Budget clarified the imposition of income tax on crypto assets. From April 1, such transactions will be subject to a 30 percent Income Tax plus cess and surcharges, in the same way that winnings from horse races or other speculative transactions are taxed.

Also, no deduction of any expenditure or allowance, apart from cost of acquisition, will be allowed while computing the income from transfer of virtual digital assets as per the provisions of Finance Bill, 2022; Infrastructure cost will not be treated as cost of acquisition for mining crypto assets and it shall be considered as capital expenditure not allowable as deduction; loss from transfer of a virtual digital asset shall not be allowed for set off against income arising from another virtual digital asset..

The Budget 2022-23 also proposed a 1% TDS on virtual currency payments exceeding Rs 10,000 per year, as well as taxation of such gifts in the hands of the recipient. The TDS threshold limit would be Rs 50,000 per year for specified persons, which would include individuals and HUFs required to have their accounts audited under the I-T Act.