The number of people investing in cryptocurrencies has grown significantly in India. As cryptocurrency investments in India is coming into more mainstream, a lot of taxpayers wonder how they can report the same into income tax returns. Certain rules on taxation were clarified in Budget 2022-23 however it does not say anything on its legality which would come out once the Bill on regulating digital assets is introduced in Parliament. One thing is certain that you must report your crypto transactions in Income tax return, failing to do so will result into penalties and income tax notice which will simply waste your time in future.
Firstly, we need to be clear about the fact that newly introduced rules of Budget 2022-23 have taxation rules for digital assets which will be applicable with effect from 1st April 2022. So how about the financial year 2021-22 which has just ended, how do we treat digital assets transaction of this period? Well, we will simplify all these points in this blog:
1. FY 21-22 (for the period 1st April 2021 to 31st March 2022):
Based on the nature of transaction your crypto gain will be assessed as business income or capital gains or other income. For frequent and high volumes classification is done as business income. If there are fewer trades and is primarily for long term then it will be classified as capital gains, only interest types of gains are reported as other income.
As capital gain
- Regarded as short term if crypto assets are held for less than three years then it is taxed as per the applicable income tax slabs.
- Regarded as long term if the crypto assets are sold after holding the investment for at least three years, then taxed at 20% with indexation benefit.
- There is no directive from the income tax authorities regarding the treatment of capital losses. However, there will be assessment by authorities or some clarification by the government may come for FY 21-22.
As Business income
Profit and Loss account will have to be prepared to ascertain gains. If your turnover has exceeded Rs 20 lakh, you may have to consider paying GST on your turnover.
As other Income
Any interest income that you may have earned is treated as other income. Taxed as per the applicable income tax slabs.
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2. FY 22-23 (for the period 1st April 2022 to 31st March 2023):
Income Tax Return form will be revised in order to fit crypto in this new Financial year 2022-23
Flat tax of 30% (plus surcharge and cess) on transfer of a virtual digital asset. You can’t deduct any expenses related, only cost of acquisition is allowed as a deduction. Losses from the transfer of virtual digital assets will not be allowed to be set off against any other income.
Do not forget the TDS part
The Budget 2022-23 also proposed a 1 per cent TDS on payments towards virtual currencies beyond Rs.10,000 in a year. The threshold limit would be Rs.50,000 a year for specified persons, which includes individuals/HUFs who are required to get their accounts audited under the Income Tax Act.
TDS will be deducted from the whole transaction value, regardless of whether the investor makes a profit or a loss.
Also, from 1st April 2022 If you receive a gift in form of cryptocurrency or any other virtual digital asset, it would be liable for taxation.
3. OTHER NOTES
A. Government is yet to clarify on several aspects of crypto such as overseas exchange, crypto swaps, crypto mining etc.
B. Why you should take expert help for filing ITR to report crypto:
Being a new legal framework, it is always safer to get your income tax return filed through professional as there is a high chance that you may make mistake while filing thereby getting notice from income tax department creating additional headache in future. Therefore, let the professional who knows this area better handle it.
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