No deductions, set-offs for taxes will disincentivise crypto in India: Experts

With no deductions and set-offs available for taxes, experts say crypto participation will be discouraged, thereby throttling the industry's growth. The minister of state, finance ministry, Pankaj Chaudhary clarified on Monday during the Lok Sabha session that investors will not be able to offset losses from one crypto trading pair by gains from another type. Moreover, he also mentioned that the mining infrastructure costs will not be included in the cost of acquisition to be claimed as a deduction.

Taking to Twitter on Monday, crypto exchange CoinDCX's co-founder and CEO Sumit Gupta pointed out that countries across the globe are adopting a pro-crypto approach so they can become crypto hubs and can enjoy the advantage.

“India has immense potential to become a leader in the #crypto space but 30 per cent taxation may affect our chances by discouraging adoption and innovation,” he tweeted.

Congress MP Karti P Chidambaram had asked the minister questions on the status of cryptocurrencies in India, in particular its legal status. Moreover, Chidambaram also wanted clarity on whether the loss due to transfer of virtual digital assets could be set off against profits from other virtual digital assets.

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Rohinton Sidhwa, Partner, Deloitte India, said, "It's a continued effort to isolate and disincentivise crypto currency related activities in India. The mining expense disallowance is unlikely to impact the majority of traders, however, the prevention of offset between different cryptos will probably negatively impact many traders."

Similarly, WazirX's CEO Nischal Shetty argued that the recent tax clarification can discourage participation in crypto.

"Treating profits and losses of each market pair separately will discourage crypto participation and throttle the industry's growth. It's very unfortunate, and we urge the government to reconsider this," he said.

Ashish Singhal, co-founder and CEO, CoinSwitch, said, "This is detrimental for India's crypto industry and the millions who have invested in this emerging asset class. We fear the lack of provision to offset losses will drive away users from KYC-compliant exchanges and platforms to the underground peer-to-peer grey market, which would defeat the purpose of the tax."

Singhal added, "The Budget recognised virtual digital assets (VDAs) as an emerging asset class. Therefore, a natural course of action would have been to progressively bring the regulations at par with other asset classes. Instead, today, with this clarification, we have taken a step backwards. If a regressive provision such as this would have been applicable in equities, it would have discouraged retail investors from participating."

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