Finance Ministry declares Crypto mining cost not to be allowed as deduction under I-T Act

According to Minister of State for Finance Pankaj Chaudhary, infrastructure costs incurred in the mining of cryptocurrencies or any virtual digital assets will not be allowed as deduction under the income tax act. Chaudhary said in a written reply to Lok Sabha that the government will come out with a definition of virtual digital assets (VDA) with a view to levy 30 percent tax on income from the transfer of such assets.

As per Chaudhary, at present the cryptocurrencies are unregulated in India. The 2022-23 Budget has brought in clarity concerning the levy of income tax on crypto assets. A 30 percent I-T plus cess and surcharges will be levied on such transactions from April 1 just 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. "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," he said.

He further said "infrastructure costs incurred in the mining of VDA (eg crypto assets) will not be treated as cost of acquisition as the same will be in the nature of capital expenditure", which is not allowable as a deduction under the I-T Act. Also, loss from the transfer of VDA will not be allowed to be set off against the income arising from the transfer of another VDA.

The Budget 2022-23 also proposed a 1 percent TDS on payments towards virtual currencies beyond Rs 10,000 in a year and taxation of such gifts in the hands of the recipient. The threshold limit for TDS would be Rs 50,000 a year for specified persons, which includes individuals/HUFs who are required to get their accounts audited under the I-T Act. The provisions related to 1 percent TDS will come into effect from July 1, 2022, while the gains will be taxed effective April 1.

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