Crypto mining prices: No I-T deduction to be allowed, says govt

Clarifying taxation elements for cryptocurrencies or digital digital property, the federal government stated Monday that infrastructure prices incurred within the mining of cryptocurrencies or any digital digital property won’t be allowed as deduction beneath the Income-tax Act.

Also, loss from the switch of digital digital asset (VDA) won’t be allowed to be set off in opposition to the revenue arising from the switch of one other VDA, Minister of State for Finance Pankaj Chaudhary stated in a written reply to the Lok Sabha.

The authorities will come out with a definition of VDAs with a view to levy 30 per cent tax on revenue from the switch of such property, he stated, including that at present cryptocurrencies are unregulated within the nation.

The FY23 Budget has introduced in readability in regards to the levy of revenue tax on crypto property. From April 1, a 30 per cent revenue tax plus cess and surcharges, will probably be levied on such transactions.

“The (Finance) Bill also proposes to define VDA. If any asset falls within the proposed definition, such virtual asset will be considered as VDA for the purposes of the Act and other provisions of the Act will apply accordingly,” Chaudhary stated.

He added “infrastructure costs incurred in the mining of VDA (e.g. crypto assets) will not be treated as cost of acquisition as the same will be in the nature of capital expenditure”, which isn’t allowable as a deduction beneath the I-T Act.

Sandeep Jhunjhunwala, associate, Nangia Andersen LLP, stated the clarifications offered by the federal government lays to relaxation a few of the doubts that stakeholders of the crypto ecosystem had been grappling with and extra could be required for withholding tax provisions on crypto transactions.

“Since intra-head adjustment of losses, i.e., set-off of loss arising from one VDA with the revenue from one other VDA wouldn’t be permitted, such losses can be a sunk price for the buyers, inflicting a double whammy — paying taxes on positive aspects and no offset of losses.

“This would lead to a situation where losses, say on account of transaction in altcoins (one VDA class) would not be permitted for set-off against gains on another VDA class, say any other programmable token or bitcoin. Similar analogy could be drawn for set-off of losses within the same class of VDA, say ethereum vs dogecoin. Disallowance of infrastructure cost incurred in mining cryptocurrencies costs, as a permissible revenue expenditure, would further increase the cost of mining these assets,” he stated.

Meanwhile, the federal government is engaged on laws to control cryptocurrencies, however no draft has but been launched publicly.