Crypto Investors

Crypto earnings in India will be taxed at 30% from April, according to Fin Min

Legalizing cryptocurrency in India has been on the Indian Government’s radar for a long time. And finally, with the announcement made in February, the speculation around cryptocurrency taxation came to an end. When Indian Finance Minister, Nirmala Sitharaman, announced the roll-out of a 30% tax on all crypto gains, it set a debate whether Indians who are still naïve to this domain, deserve to pay the tax money. Even before the buzz could settle, the further clarification that losses incurred in one digital asset can’t offset against the income of another, came as a bolt out of blue to many Indian crypto investors.

Clearly, the Indian Government considers crypto money like a lottery prize or money made through casinos, gambling, or betting which attracts over 31.20% GST. After holding marathon discussions, finally, the government decided upon cryptocurrency taxation in 2022. They have proposed taxing income from the transfer of any virtual asset at 30%. Unlike in stock markets, Indian crypto investors cannot offset their losses against income from other digital tokens. The further announcement that specified regulatory procedures for infrastructure costs for mining cryptocurrency shocked the crypto investors. According to the announcement, the cost spent on mining cannot include the cost of mining.


Implications of Cryptocurrency Taxation in India

The Indian Ministry of Finance has clarified in the parliament how the government plans to impose cryptocurrency taxation. The Minister of State in the Ministry of Finance, Pankaj Chaudhary, has announced the insertion of section 115BBH to the Income Tax Act 1961, which will impose taxation of income from transfers of virtual digital assets (VDAs).

While answering the parliament members’ questions, he clarified that infrastructure costs incurred in the mining of cryptocurrency will not be treated as the cost of acquisition. During further discussion, he also highlighted that ‘loss from one cryptocurrency will not be allowed to be set off against the income arising from the transfer of another.’

The clarification comes just two weeks before India enters the crypto taxation mode. However, many crypto investors think that this new slapping of steep tax rates and strict regulations will limp the growth of the decentralized ecosystem in the country. Many crypto community founders have also expressed shock and disappointment. The Reserve Bank of India and the Indian government have been skeptical about the cryptocurrency sphere despite the rise in trading volume over the past two years. The Indian authorities have implied that digital currencies might be used for ill causes like money laundering, terror financing, and price volatility.


Why do Indian Crypto Investors are varied?

According to the cryptocurrency taxation law proposed this February, investors should pay a flat 30% tax on all crypto gains. Besides, the Indian government has also mandated a 1% tax deducted at source (TDS) on all crypto transactions irrespective of a loss or profit. Nischal Shetty, Founder, and CEO of WazirX tweeted that this 1% taxation could fetch US$100 million in additional income for the government.

While there was still smoke over the burnt cryptocurrency taxation talks, the Finance Ministry has clarified that investors will not be allowed to adjust losses in one cryptocurrency against the profit of another. Besides, the crypto mining expenditure will not be treated as infrastructure costs but as capital expenditures. It will further put an end to the deduction on mining costs.


Bringing Crypto Under GST

The Indian government is currently working on bringing cryptocurrency under the goods and services tax (GST). This will impose taxation on the entire value of transactions. Currently, 18% GST is levied only on services provided by crypto exchanges and is categorized as financial services.

Since Indian authorities view crypto as a lottery, casinos, betting, gambling, and horse racing, they pitch for a 29% GST on the entire value. However, the ministry is yet to attain clarity in classifying cryptocurrency under the GST taxation.