Just a week before the new tax regulations are supposed to take effect, the Indian crypto tax policy has become even more confusing. According to a recent legislative note responding to questions regarding the new tax regulations on virtual digital assets, traders cannot deduct losses from one digital asset from profits from another.
Many experts believe the current clarification from the government is a death knell for dealers. As the new tax policy awaits implementation on April 1. Traders are expected to treat each investment and profit/loss on a digital asset separately under the government’s crypto tax policy.
For example, if a trader invests $100 in each Bitcoin (BTC) and Ether (ETH) and makes a profit of $100 on Ether and a loss of $100 on Bitcoin, the trader must pay a 30% tax on the Ether profit without taking into account losses on BTC.
The tax scheme, according to WazirX founder Nischal Shetty, is regressive and “unbelievable”. But he remains confident that the government would change its mind. He said:
“Treating each market pair’s earnings and losses individually will discourage crypto participation and stifle the industry’s expansion. It’s a pity, and we’d want to see the administration reconsider.”
Apart from the recent cost of processing each crypto trading pair separately, crypto entrepreneurs and exchanges are also criticising the 1% tax deduction at source on each transaction, which they feel would dry up liquidity.
Naimish Sanghvi, a cryptocurrency entrepreneur, proposed that traders liquidate all they own before March 31, 2022, and start over in April 2022.
India is unable to create a regulatory framework for the crypto business
There are repeated claims by the government since 2018. Nevertheless, India has been unable to create a regulatory framework for the crypto business. Many believed that the imposition of taxes would give the crypto business some credibility. However, the finance ministry has stated that the crypto industry will only obtain legal standing if the crypto bill passed.
The crypto tax policy appears to fall under the influence of the country’s gambling and lottery tax legislation. Which reflects the government’s stance on the crypto sector.
Thailand and South Korea have both suggested a hefty crypto tax. But both have failed since the governments realised it would stifle the embryonic market’s growth. Korea had to postpone its 20% crypto tax, while Thailand excused dealers from paying 7% VAT on recognised exchanges.