India will tax your crypto earnings even if you’ve made losses


India finally gave cryptocurrency and digital assets some recognition, although its proposal for a 30% tax on income from all virtual assets will upset many. This levy includes cryptocurrency exchanges, as well as NFT (Non-Fungible Token) trades.

This move comes after a lot of uncertainty around the legality of cryptocurrency trades and exchanges created by rumors of a blanket ban last year. However, Finance Minister Nirmala Sitharaman said that the government will present a new draft of the crypto bill soon, with an aim to regulate digital currency transactions.

While the draft hasn’t been tabled, India made two important announcements related to that in today’s union budget: a digital currency will be introduced by India’s central bank in the fiscal year 2022-23, and your income from digital assets trading will be taxed.

By introducing taxation, India has legitimized cryptocurrencies, and removed the fear of a ban on trading. This step will give confidence to global investors and exchanges to set up bases in India, and cater to a growing audience of more than 15 million cryptocurrency owners. Plus, companies building metaverse products might be attracted to utilize the millions of developers based in the country.

However, it’s also one of the first countries in the world to not allow any offsets occurred by losses in cryptocurrency trading, which will scare off some investors, but also create a marketplace for cautious trading.

Let’s take a look at how exactly this new regulation will work.

How will the new tax scheme work?

The taxation part is more important for common cryptocurrency traders. Here’s what it means for you (for simplicity, I’m sticking to Indian rupees as the currency unit):

You will be taxed 30% on your cryptocurrency trading income, and there will be no offset for losses when it comes to other means of income, such as money earned from trading stocks.

If you buy Coin A and Coin B both at ₹100, and sell them for ₹200 and ₹50, you will have to pay ₹15 as tax (based on 30% rate). But if both your coins sell for ₹50 each, you can’t claim any losses.

This will expectedly drive people to invest cautiously and stay away from volatile tokens. The new rule will be effective from April 1, 2023 for the assessment year 2023-24.