The Indian government aims to handle each crypto trading pair transaction independently. It will discourage traders because they will only be taxed on their gains, and will not be compensated for their losses.
India’s new crypto tax policy
Just a week before the new tax regulations take effect, India’s crypto tax policy grew much more confusing. According to a recent legislative note responding to a question regarding the new tax laws on virtual digital assets, investors cannot balance losses on one digital asset with profits on another. As the new tax policy prepares to take effect on April 1, many analysts believe the government’s recent explanation is a death knell for crypto traders. The government’s crypto tax policy requires traders to treat each transaction and profit/loss on a digital asset separately.
An example under the new crypto tax policy
For example, if a trader invests $100 in each Bitcoin (BTC) and Ether (ETH) and makes a profit of $100 on Ether but loses $100 on Bitcoin, the trader will have to pay a 30% tax on the Ether profit without taking into account losses on BTC.
The tax scheme is regressive and unbelievable, according to WazirX founder Nischal Shetty, who remains confident that the government would reconsider its decision.
Role of TDS in crypto tax
Treating each market pair’s gains and losses independently will discourage crypto adoption and inhibit the industry’s growth. Apart from it, crypto entrepreneurs are criticising the 1% tax deduction at source on each transaction, which they feel would dry up liquidity.
Despite many pledges from the government since 2018, India has yet to develop a regulatory framework for the crypto business. While many believed that the introduction of taxes would give the crypto business some credibility, the finance ministry has stated that the industry would only obtain legal standing if the crypto bill is passed.
