Synopsis-While a crypto trader may never have the latitude his counterpart in the share market enjoys, tax authorities will examine the possibility of making changes in the Finance Bill to allow a degree of set off of losses, according to recent discussions between senior tax officials and tax practitioners.
The government will explore permitting a limited set-off of one year’s losses from cryptocurrency trade against profits made in the same financial year. Such set-offs are allowed in listed and unlisted stock transactions, with the law even allowing carrying forward of the loss by four to eight years, depending on the nature of the trade.
While a crypto trader may never have the latitude his counterpart in the share market enjoys, tax authorities will examine the possibility of making changes in the Finance Bill to allow a degree of set off of losses, according to recent discussions between senior tax officials and tax practitioners. “Within a year, if there are four (crypto) transactions, where you have profit in two transactions and loss in two transactions, set offs, the way it is worded, are not allowed. But this one issue that we have noticed…because it is exactly worded like section 115 BBE. The same provision has been imported here,” said Kamlesh C Varshney, joint secretary of Central Board of Direct Taxes (CBDT), in a post-Budget interaction with members of Assocham. Section 115 BBE of the Income Tax Act deals with undisclosed income and its taxability.
Pain points
- Absence of set-off of losses is unfair, feels industry
- 1% TDS too high as intention is to track deals
- Power cost for crypto mining not a deduction
- Crypto purchase from overseas sellers can be complex due to TDS
- Bill may have to add a line to let local bourses deduct TDS
The law disallows set-off of losses from such undisclosed income. Since the language of this section has been replicated in the proposal for crypto tax, the matter is likely to be reviewed. “It is for discussion whether we would stay with this or allow set-off within a year,” said the IRS official.
In stock trades, losses suffered in a financial year can be carried forward to set off profits in the next eight years and thus lower the tax outgo, as long as the gains are recognised as ‘capital gain’ or ‘business income.’
Losses on account of ‘speculative’ trades (arising from intraday and high frequency transactions) can also be set off from speculative profits over the next four years. However, long-term losses that are carried forward cannot be set off against short-term gains (booked when a stock is sold within a year of purchase).
“The intention is to track transactions through TDS while a separate tax mechanism has been prescribed without having to classify the gains as either capital gains, business income or income from other sources,” said Ashish Mehta, partner at law firm Khaitan & Co. “Flat tax, no cost allowances (other than acquisition cost) as well as no set-off of losses make crypto holdings less lucrative compared to other asset classes. One hopes that the position on set-offs is reconsidered and tax concessions/breaks, at least in case of speculative transactions, are accorded to crypto trades as well.”
(Originally published on Feb 14, 2022, 06:43 AM IST)
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