FinMin says you can't set off losses in crypto trades to reduce tax burden

One of Karti Chidambaram's questions pointedly quizzed the finance minsitry if losses incurred due to transfer of one virtual digital asset (VDA) can be set off against gains from another VDA

In response, the minister quoted the provisions of the proposed section 115BBH of the Income Tax Act, 1961

wherein "loss from the transfer of VDA will not be allowed to be set off against the income arising from transfer of another VDA"

In a separate question, Karti had also inquired if the infrastructure costs incurred in mining cryptocurrencies are to be treated as cost of acquisition and are therefore permissible deductions.

However, the proposed Section (2) (a) of clause 115BBH clearly spells out that, "no deduction in respect of any expenditure (other than the cost of acquisition)

or allowance or set-off of any loss shall be allowed to the assessee under any provision of this Act in computing the income."

This means that other than the cost of purchasing the particular coin, no other deduction can be made on the 30 percent tax on cryptocurrency profits.

Therefore, as Coin Crunch India founder Naimish Sanghvi puts it, "if you made loss in Bitcoin, you cannot set it off with profit in Ethereum."

In comparison, it is possible in certain situations to set off profits made in the stock market by loss-making investments in the stock market.

Example Rs. 100 invested into Coin1 Rs.  100 invested into Coin2  Total Investment: Rs. 200

You make Rs. 100 profit in Coin1  And  lose Rs. 100 in Coin2

You have to pay 30% for Coin1 profit since you won’t be able to offset Coin2 loss

You now  have remaining : Rs. 170