Here's how tax clarification on set-off of cryptocurrency gains and losses affects investors

moneycontrol.com:

The legal mandate on bringing digital assets under the ambit of taxation in this year’s budget speech was indeed a welcome and motivating move for the entire digital asset industry and Web 3.0 market.

While a flat tax rate of 30% on gains from trading in virtual digital assets (VDA) announced by the Finance Minister appeared to be a cause of some concern (but not a deterrent in trading and investing) at that stage, the government has stepped up to give cryptocurrencies/VDAs some form of recognition as an asset class for the purposes of taxation, even though the sector otherwise remains largely unregulated.

In addition, while responding to the queries on the said subject matter by one of the Parliamentarians, the Government, on March 21, clarified that “as per the provisions of the proposed Section 115BBH to the Income-tax Act, 1961, loss from the transfer of a VDA will not be allowed to be set-off against the income arising from the transfer of another VDA”.

This essentially implies that each VDA in an investor’s portfolio, i.e, crypto coins or non-fungible tokens (NFT), will be treated as a separate asset class, and the gain or loss against the transfer of a particular VDA cannot be set off/adjusted against the loss or gain, respectively, in any other VDA.

In simple words, if an investor trades in Coin A and Coin B, the gains in Coin A in a particular financial year will only be allowed to be reduced/adjusted against the losses incurred while trading in Coin A (not Coin B).

By way of an example (hypothetically), let us say X invested Rs 1,000 in Coin A and Rs 1,000 in Coin B.

When X sold the VDAs (both Coin A and Coin B), gains from Coin A were Rs 500, losses from Coin B were Rs 600, and the remaining capital was as follows:

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