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Crypto Mining Costs Cannot Be Allowed As Deductions Under The IT Act: Ministry of Finance


Budget 2022-23 has provided clarity on the income tax levy on crypto assets.

New Delhi:

Infrastructure costs incurred in the mining of cryptocurrencies or any virtual digital assets will not be allowed as deductions under the Income Tax (IT) Act, Minister of State for Finance Pankaj Chaudhary said on Monday.

In a written reply to the Lok Sabha, Chaudhary said the government would issue a definition of virtual digital assets (VDA) with the aim of imposing a 30 per cent tax on income from the transfer of such assets.

He said currently cryptocurrencies are not regulated in India.

Budget 2022-23 has provided clarity on the income tax levy on crypto assets. Beginning April 1, 30 percent of IT as well as cess and surcharges, will be levied on such transactions in the same way as it entertains wins from horse races or other speculative transactions.

The minister said when calculating the income from the VDA transfer, no deduction in relation to any expenses (other than acquisition costs) or allowances was allowed.

“The (Finance) Bill also proposes to define a VDA. If any asset is included in the proposed definition, the virtual asset will be treated as a VDA for the purposes of the Act and other provisions of the Act will apply accordingly,” he said.

He further said “infrastructure costs incurred in VDA mining (e.g. crypto assets) will not be considered as acquisition costs as the same costs are in the form of capital expenditure”, which is not allowed as a deduction under the IT Act.

Also, losses from VDA transfers will not be allowed to be deducted from income arising from other VDA transfers.

Budget 2022-23 also proposes 1 per cent TDS on payments against virtual currency in excess of Rs 10,000 per annum and tax for such gifts in the hands of the recipient. The threshold limit for TDS is Rs 50,000 per annum for certain persons, which includes individuals/HUFs who are required to have their accounts audited under the IT Act.

The 1 per cent TDS related provision will be effective July 1, 2022, while profits will be taxed effective April 1.

Separately, the government is working on legislation to regulate cryptocurrencies, but no draft has yet been released publicly.

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