Tax man: India’s new tax policies could prove fatal for crypto industry

Indian crypto tax policy has become the hottest topic for Indian crypto traders and exchange operators as it is set to become law on March 24 and will come into effect starting on April 1. 

The proposed 30% crypto tax is the highest in the country and is equivalent to the tax imposed on gambling and lottery tickets. While the high tax bracket was already a cause of concern for many new and small traders, a recent clarification from the government has made things even more complicated for the Indian traders.

The parliamentary clarification on March 22 indicated that each crypto trading pair would be independently considered and traders can’t offset their losses against profit on another trading pair. This means if a trader invests $100 each in two tokens and incurs losses on one investment while making a profit on another trade, they would have to pay taxes on their profitable trade without accounting for the losses.

Nischal Shetty, founder of WazirX crypto exchange, told Cointelegraph, “As per response by P.P. Chaudhary in the parliament today, investors will not be able to offset losses from one crypto trading pair by gains from another type. Moreover, it also mentions that the mining infrastructure costs will not be included in the cost of acquisition to be claimed as a deduction.” 

“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.”

Previously, a 1% transaction deduction at source (TDS), which was supposed to come into effect on June 1, was the primary concern for crypto entrepreneurs and exchange operators, as they believed a 1% TDS on each crypto trade would dry up liquidity on exchanges. 

If you start with a capital of RS 51000, by trade no 11 – 10% of your capital will be locked as TDS and 50% by trade no 69.

— Aditya Singh (@CryptooAdy) March 24, 2022

However, many believe that this recent clarification about traders not being able to offset their losses against gains could potentially kill the nascent industry.

Akash Girimath, a crypto trader and technical analyst, told Cointelegraph that a 30% tax bracket might not be that bad of a thing, given the crypto market is still volatile and prone to scams. He said a high tax barrier would help discourage “unbeknownst investors from diving headfirst into cryptocurrencies.” 

In light of the news about offsetting losses, however, Grimath believed it would not be a wise tax model, stating, “If the recent reports about the crypto tax bill are true and if traders cannot offset their losses from one crypto by gains from another or vice versa, will definitely discourage traders from reporting their gains.”

“The regulators need to understand that it is not hard to skirt the law, especially with the recent interest in Web3 and the rise of decentralized exchanges and mixers. It will be interesting to see how the Indian watchdogs plan to curb or regulate and tax the decentralized finance space.”

Grimath said that from a trader’s standpoint, the 30% tax isn’t as scary as the 1% TDS. He stated that if the TDS is levied on crypto transactions, it will be a massive blow to traders. But, if it is applicable only at on/off-ramps, then it will make life much easier for crypto traders. 

Another crypto trader, who preferred to remain anonymous, bashed the recent government policy and said it sends out the wrong message to entrepreneurs in the country. Talking about the high 30% tax bracket, he said:

“It will impact adversely. It’s not a system that embraces or accepts crypto, it’s a crypto penalty tax and a desperate measure to earn extra tax income. Nothing has affected the crypto ecosystem to date and the crypto tax is nothing new. People always find better ways to be in crypto.”

Namish Sanghvi, crypto trader and entrepreneur, suggested traders should sell all their holdings before April 1 and start fresh….