The government on Thursday proposed to tighten the norms for taxation of cryptocurrencies by not allowing investors to set off any losses from one virtual asset with gains from other digital assets.

According to the amendments to the Finance Bill, 2022, circulated among the Lok Sabha members, the ministry proposes to remove the word ‘other’ from section relating to set off of losses from gains in virtual digital assets.

This would mean that loss from the transfer of virtual digital assets (VDA) will not be allowed to be set off against the income arising from the transfer of another VDA. According to the Finance Bill, 2022, a VDA could be a code or number or token which can be transferred, stored or traded electronically.

The VDAs will include prevailing cryptocurrencies and non-fungible tokens (NFTs) which has gained favour over the past couple of years.

The 2022-23 Budget has brought in clarity concerning the levy of income tax on crypto assets. From April 1, a 30 per cent I-T plus cess and surcharges, will be levied on such transactions in the same manner as it treats winnings from horse races or other speculative transactions.

While computing the income from transfer of VDA, no deduction in respect of any expenditure (other than the cost of acquisition) or allowance will be allowed. The Budget also proposed a 1 per cent TDS on payments towards virtual currencies beyond Rs 10,000 in a year and taxation of such gifts in the hands of the recipient.