The Indian Ministry of Finance responded to queries in the Lok Sabha, the lower house of parliament, on March 21 about how cryptocurrency transactions will be taxed in the future.
Minister Pankaj Chaudhary, minister of state in the finance department, indicated that the Financial Bill 2022 proposes to amend the Income Tax Act 1961 by inserting section 115BBH to provide for the taxation of income from transfers of virtual digital assets (VDAs). He stated,
Under the proposed clause, any revenue derived from the transfer of VDA will be taxed at a rate of 30%. Furthermore, no deduction in respect of any expenditure (other than cost of purchase) or allowance is permitted in determining the revenue from the transfer of VDA.
Minister Chaudhary stressed that the law also attempts to define VDA. If any asset fits under the proposed definition, it will be regarded as a VDA for the purposes of the Act, and the Act’s other provisions will apply accordingly.
Karti Chidambaram, a Lok Sabha member, specifically questioned the finance minister if infrastructure expenditures paid in cryptocurrencies are to be recognised as costs of acquisition and hence allowable deductions.
Minister Chaudhary elaborated,
Infrastructure expenses paid in mining VDA (e.g. crypto assets) will not be considered as acquisition costs since they are in the nature of capital expenditure, which is not allowable as a deduction under the act.
Noting that losses incurred as a result of the transfer of virtual digital assets cannot be set off against any other income, Chidambaram went on to query whether “losses resulting from the sale of one virtual digital asset may be set off against profits emerging from another virtual digital asset.”
The minister of state responded, citing the proposed provisions:
Losses incurred as a result of the transfer of a VDA will not be allowed to be offset against revenue derived from the transfer of another VDA.
The Indian government is also working on classifying cryptocurrencies under the Goods and Services Tax (GST) law in order to impose a tax on the total number of transactions. According to sources, the current law lacks a clear definition of cryptocurrency, and 18 percent GST is only levied on services provided by crypto exchanges that are classified as financial services.
According to one GST official, There is a need for clarification about the levy of GST on cryptocurrencies and whether it must be imposed on the total value. Recently, the Indian income tax authority is pursuing 700 bitcoin investors for unpaid taxes.
In the meantime, the Indian government is drafting cryptocurrency laws. A crypto law was scheduled to be debated at the winter session of parliament, but it was never brought up. According to reports, the administration requires additional time to finish the law.