Indian crypto tax policy to treat each digital asset investment independently

The government intends to treat each crypto trading pair transaction separately, deterring traders as it would only tax their profits without accounting for the losses.

Indian crypto tax policy became even more complicated just a week before the new tax laws are set to come into effect. A new parliamentary note answering queries about the new tax policies on virtual digital assets suggests that traders can’t offset their losses from one digital asset against profit on another.

As the new tax policy waits for April 1 to come into effect, many experts claim the latest clarification from the government is a death knell for traders. The crypto tax policy of the government expects traders to treat each investment and profit/loss on a digital asset independently.

For example, if a trader invests $100 in each Bitcoin (BTC) and Ether (ETH), and they gain a profit of $100 on Ether and a loss of $100 on Bitcoin, then the trader would have to pay a 30% tax on the profit of Ether without accounting for losses on BTC.

WazirX founder Nischal Shetty called the tax policy regressive and “unbelievable” but remains hopeful the government will change its stance. He told Cointelegraph:

“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.”

Apart from the latest burden of treating each crypto trading pair independently, the 1% tax deduction at source on each transaction is also being criticized by crypto entrepreneurs and especially exchanges, as they believe it would dry up liquidity.

Crypto entrepreneur Naimish Sanghvi suggested that traders should sell everything they have before March 31, 2022, and start fresh from April 2022.

My suggestion to sell off everything applies to those who are in overall profit. That way you can still offset your losses with profits before March 31.

If you’re only in profit, or only in loss across all your investments, then it’s wise to just hold! https://t.co/4RxKH8xKOT

— Naimish Sanghvi (@ThatNaimish) March 21, 2022

India is yet to finalize a regulatory framework for the crypto industry despite several assurances by the government since 2018. While many hoped the introduction of taxes would offer some form of legitimacy to the crypto industry, the finance ministry has made it clear that the industry would gain any legal status only after the passing of the crypto bill.

Related: India’s crypto tax provides little legal clarity for traders and exchanges

The crypto tax policy seems to be inspired by the country’s gambling and lottery tax laws, which somewhat reflects the government’s approach toward the crypto market.

Seems like, Idea for crypto tax policy came from here. pic.twitter.com/wuUaWQxU2f

— Aditya Singh (@CryptooAdy) March 16, 2022

Countries such as Thailand and South Korea have also proposed a similar high crypto tax, but those policies have failed, as the government understood it would hinder the growth of the nascent market. Korea had to postpone its 20% crypto tax, while Thailand exempted traders from paying 7% value-added tax on authorized exchanges.