Your profit is our profit, your loss is your loss – GoI”  Well, the government. didn’t explicitly say this in Budget 2022 but this is what Indians have been circulating across the internet ever since 1st February. So, in Budget 2022, the government cleared the air on taxation of “virtual digital assets” that includes cryptocurrency too, going by the official definition of this term. The crypto fraternity rejoiced at this moment, assuming it to be the indirect legalization of cryptocurrencies. But, looking into the finer details of budget 2022, i.e., the things that were not said during the speech of the FM, it’s easy to deduce that although the government hasn’t put a blanket ban on crypto, but government has surely taken a step towards curbing speculative trading in cryptocurrencies.

It’s evident from the following statements mentioned in the Memorandum explaining the provisions in the Finance Bill, 2022

2.2 Further, no set-off of any loss arising from the transfer of virtual digital assets shall be allowed against any income computed under any other provision of the Act, and such loss shall not be allowed to be carried forward to subsequent assessment years.

3. Further, in order to widen the tax base from the transactions so carried out in relation to these assets, it is proposed to insert section 194S to the Act to provide for deduction of tax on payment for the transfer of virtual digital assets to a resident at the rate of one percent of such sum.

Let me help you understand all this using an elaborate example:

> Let’s say you buy bitcoins worth Rs 1 Lakh on 1st July 2022. Now, assume that the value of your bitcoins is worth Rs. 50K on 1st August 2022. This means that you’ve incurred a loss of 50K in a month.

> Now you decide to book this loss and take out money from bitcoins because you aren’t expecting it to recover anytime soon, and you want to cut your losses.

> So, you book a loss of Rs. 50,000 and take the money out. At this point in time, you will not get 50,000 back. Instead, you will get back Rs 49,500 because 1% TDS will be deducted. So, it doesn’t matter whether you are making a profit or loss, TDS will be deducted at the time of redemption.

> You now invest this Rs 49,500 in Ethereum on 1st August 2022.

> Ethereum does well and it’s valued at Rs 80,000 on 1st March 2023. You decide to sell it off and book the profit. So, you get back Rs 79,200, because TDS of 1% will be deducted.

So, on 1st March 2023, you don’t have any holdings in cryptocurrencies anymore.

During the financial year 2022-23, here is what you have done with your crypto investments:

1. Made a loss of Rs 50,000 on bitcoin and got a TDS of Rs 500 deducted while booking that loss.
   
2. Made a profit of Rs 30,500 on Ethereum and got TDS of Rs 800 deducted while booking that profit.
   
3. In total, you made a loss of -50,000 30,500 = -19,500
   
4. And paid Rs 1300 (500 800) in taxes to the govt. already.
   

But since you made an overall loss in your crypto investments, you aren’t supposed to pay tax. So, while filing the ITR for 2022-23, you will show that you booked a loss of Rs 19,500 and hence, the TDS of Rs 1300 must be refunded to you. The government will refund that to you gracefully.