Crypto mining prices: No I-T deduction to be allowed, says govt

Clarifying taxation facets for cryptocurrencies or digital digital belongings, the federal government stated Monday that infrastructure prices incurred within the mining of cryptocurrencies or any digital digital belongings won’t be allowed as deduction underneath the Income-tax Act.

Also, loss from the switch of digital digital asset (VDA) won’t be allowed to be set off in opposition to the earnings arising from the switch of one other VDA, Minister of State for Finance Pankaj Chaudhary stated in a written reply to the Lok Sabha.

The authorities will come out with a definition of VDAs with a view to levy 30 per cent tax on earnings from the switch of such belongings, he stated, including that presently cryptocurrencies are unregulated within the nation.

The FY23 Budget has introduced in readability regarding the levy of earnings tax on crypto belongings. From April 1, a 30 per cent earnings tax plus cess and surcharges, will be levied on such transactions.

“The (Finance) Bill also proposes to define VDA. If any asset falls within the proposed definition, such virtual asset will be considered as VDA for the purposes of the Act and other provisions of the Act will apply accordingly,” Chaudhary stated.

He added “infrastructure costs incurred in the mining of VDA (e.g. crypto assets) will not be treated as cost of acquisition as the same will be in the nature of capital expenditure”, which isn’t allowable as a deduction underneath the I-T Act.

Sandeep Jhunjhunwala, companion, Nangia Andersen LLP, stated the clarifications supplied by the federal government lays to relaxation a few of the doubts that stakeholders of the crypto ecosystem had been grappling with and extra may be required for withholding tax provisions on crypto transactions.

“Since intra-head adjustment of losses, i.e., set-off of loss arising from one VDA with the earnings from one other VDA wouldn’t be permitted, such losses would be a sunk value for the traders, inflicting a double whammy — paying taxes on good points and no offset of losses.

“This would lead to a situation where losses, say on account of transaction in altcoins (one VDA class) would not be permitted for set-off against gains on another VDA class, say any other programmable token or bitcoin. Similar analogy could be drawn for set-off of losses within the same class of VDA, say ethereum vs dogecoin. Disallowance of infrastructure cost incurred in mining cryptocurrencies costs, as a permissible revenue expenditure, would further increase the cost of mining these assets,” he stated.

Meanwhile, the federal government is engaged on laws to regulate cryptocurrencies, however no draft has but been launched publicly.

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