The proposed tax on virtual digital assets (VDAs) or "crypto tax" in the Union Budget 2022-23 is slated to take effect on April 1, after the Lok Sabha cleared the Finance Bill 2022 on Friday.

The Lok Sabha also approved amendments to the Finance Bill, 2022, that clarified the taxation of virtual digital assets. The Bill's section 115BBH deals with taxes on virtual digital assets. Clause (2)(b) prohibits losses on crypto asset trading from being deducted from income under "any other provision" of the IT Act. The term "other" has been removed from the amendment. Losses from crypto assets cannot be offset against gains in crypto assets under the modified law.

"The proposed 30% tax, regardless of whether crypto-assets are considered capital assets or not, will be detrimental to the industry's current investor growth. Even if daytraders are not already in the income tax levels, this shift will prevent them from saving money on taxes "Founder and CEO of crypto exchange WazirX, Nischal Shetty, stated. "Furthermore, denying investors the ability to offset losses from one crypto trading pair with gains from another will further discourage crypto participation and stifle sector growth," he added.

Shetty said, the new regulation will not give the government with the required results. "It could lead to a spike in capital outflow to foreign exchanges or those that aren't KYC compliant, as well as cascading participation on Indian exchanges that follow KYC requirements. This is not good for the Indian government or the crypto environment "he said.

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