Infrastructure cost incurred in the mining of virtual digital assets such as cryptocurrencies will not be allowed as deduction under the Income Tax Act, minister of state for finance Pankaj Chaudhary told Parliament on Monday.
The government will come out with a definition of virtual digital assets (VDA) with a view to levy 30% tax on income from the transfer of such assets, Chaudhary told the Lok Sabha in a written reply.
The FY23 Budget brought in clarity concerning the levy of income tax on virtual digital assets. From April 1, a 30% tax plus applicable cess and surcharges, will be levied on gains from such transactions in the same manner as it treats winnings from horse races or other speculative transactions.
The minister said while computing the income from transfer of VDA, no deduction in respect of any expenditure (other than the cost of acquisition) or allowance is allowed.
“Infrastructure costs incurred in mining of VDA will not be treated as cost of acquisition as the same will be in the nature of capital expenditure which is not allowable as deduction as per the provisions of the Act,” the minister said.
Also, any loss from the transfer of VDA will not be allowed to be set off against the income arising from the transfer of another VDA, he added.
The FY23 Budget also proposed a 1% TDS on payments towards virtual currencies beyond Rs 10,000/year and taxation of such gifts in the hands of the recipient. The threshold limit for TDS would be Rs 50,000 per annum for specified persons, which include individuals/HUFs who are required to get their accounts audited under the Income Tax Act. The provisions related to 1% TDS will come into effect from July 1, 2022.
Separately, the government is working on a legal framework for cryptocurrencies, but no draft has yet been released for public consultation. Currently, cryptocurrencies are unregulated in India.