Crypto industry body says not offsetting crypto losses will impact tax collections

Crypto industry body Blockchain and Crypto Assets Council (BACC) has said that the government's decision to not allow offsetting losses arising from investing in virtual digital assets (or VDAs) can have a negative impact on investor behaviour and tax collection.

This comes against the backdrop of the criticisms that the new crypto tax laws have drawn from leading stakeholders in the cryptocurrency industry. The new tax proposals, as delineated by finance minister Nirmala Sitharaman during her 2022 Budget speech and clarified recently by the finance ministry in the Lok Sabha, include a 30 per cent capital gains tax, a 1 per cent tax deducted at the source, and disallowing offsetting of losses from investing in cryptos.

“The lack of an opportunity to offset expenses and carry forward losses will act as a deterrent for small businesses and will hamper wider adoption. While the government has allowed carrying forward losses in the shares trading business, crypto trading should have been given the same treatment,” said Sumit Gupta, co-chair of BACC and founder-CEO of the crypto exchange CoinDCX.

“We fear the lack of provision to offset losses will drive away users from KYC-compliant exchanges and platforms to the peer-to-peer grey market, which would defeat the purpose of the new tax. The Budget recognised virtual digital assets (VDAs) as an emerging asset class. Therefore, a natural course of action would have been to progressively bring the regulations at par with other asset classes. Instead, yesterday, with this clarification in Parliament, we have taken a step backwards. If a regressive provision such as this would have been applicable in equities, it would have discouraged retail investors from participating,” added Ashish Singhal, co-chair of BACC and founder-CEO of another crypto exchange, CoinSwitch Kuber.