Since crypto tax is new in India, investors and traders may face some difficulties especially when filing ITR for FY 2021-22 as there is a lot of confusion.
Cryptocurrency Tax Return FY 2021-22 and FY 2022-23: Crypto traders and investors will be required to report income from cryptocurrency transactions while filing income tax returns for FY 2021-22 this year. In Budget 2022, the government announced a 30% flat rate tax on income from crypto and other virtual digital assets. This rule will apply during the filing of ITR for FY 2022-23 next year.
Since crypto tax is new in India, investors and traders may face some difficulties especially when filing ITR for FY 2021-22 as there is a lot of confusion. Experts hope that from next year there will be a lot of clarity on how to report crypto earnings in ITR.
Before Budget 2022, the cryptocurrency or NFT transaction was always taxable like any other asset. In Budget 2022, the new asset category has been determined as Virtual Digital Asset (VDA). These VDAs would be taxed at an ordinary tax rate of 30% with no benefit of deduction apart from the purchase cost. Furthermore, a TDS at a rate of 1% has also been proposed.
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“When venturing into crypto transactions, always make sure that the money being used is properly reported on tax returns. If you borrow money to trade cryptocurrency, beware that you cannot claim interest as a deduction from taxable profits. Since TDS is suggested for VDA transactions, make sure to file income tax returns even if you have no loss from VDA transactions. This will help to claim refund of withheld tax,” Sujit Bangar, founder of Taxbuddy.com, told FE Online.
Tax on crypto income from foreign currencies
According to Bangar, if you bought cryptocurrency from exchanges outside of India, they can be considered as a foreign asset and can be reported in ITR as a foreign asset. Exchanging one cryptocurrency for another may also incur taxes.
No settlement allowed
“Another important point to note is that cryptocurrency losses cannot be offset against other earnings and cannot even be carried forward. For example, I entered into crypto transactions resulting in a loss of 350,000. I have income from stock trading in the amount of 750,000. Here my taxable income would be 750k and I can’t take advantage of offsetting a loss of 350,000,” Bangar explained.
Important points to keep in mind for FY 2021-22
Abhishek Soni, co-founder of Tax2win, said there is currently no clarity from the Income Tax Department on how crypto’s profits will be taxable for FY 2021-22 ITR. Clarification from the CBDT is expected on this point.
Important points to keep in mind for FY 2022-23
According to tax experts, there are some key points a taxpayer should keep in mind regarding the taxation of crypto profit/loss as per Budget 2022:
- First of all, you need to calculate all your profits made through crypto holdings, staking, farming and ICOs and itemize them in your business income
- Profits from crypto should be reported as special income under the heading ‘Income from other sources’. There will be a separate column in the ITR Form for this.
- A flat rate of 30% tax applies to the profits made, without deduction of any costs, except the cost of acquiring that currency.
- Cryptocurrency losses cannot be offset against other income and cannot be transferred. For example, if we incurred a loss of 10,000 rupees in the previous year and we earned 20,000 rupees in the current year, we would have to pay 30% tax on 20,000 rupees, or 6,000 rupees.
- These newly introduced provisions will apply from assessment year 2023-24, i.e. FY 2022-23.
- You are liable for tax on the net profit of the financial year. Net profit = Total profit in the current financial year – Total loss in the current financial year.
- Remember to claim the TDS (tax deduction at source) deducted while trading securities on the exchanges.
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How complex is it currently to file crypto tax in India?
Neha Nagar, founder and CEO of TaxationHelp.in, said that people who will be filing crypto profits tax for the first time will face some difficulties right now.
“For example, they cannot take the TDS certificates off the exchange. In addition, people may find it difficult to calculate their total profits made during the year as most exchanges do not provide the correct explanation for this. Profits made outside of these exchanges will be very difficult to calculate as they provide no explanation for the profit. For example, profits made through decentralized exchanges, lending and borrowing platforms, or the ploying of rewards may be falsely reported on the income tax return. Therefore, it is currently quite complex to file crypto tax in India,” she added.
The new virtual digital asset tax rules would apply to transactions made in FY 2022-23. The ITR forms have not yet been submitted as the ITR for FY 2022-23 was due to be filed in July 2023. As for filing ITR for transactions entered in FY 2021-22 (AY2022-23), the new rules prescribed in Budget 2022 will not apply.
“For the current fiscal year (FY 2021-22) there is no clarity regarding the taxation of crypto profits. According to one view, ITR can be filed and treated the same as a capital gain like other capital goods, provided it is not treated as business income. However, another view suggests that this should be displayed under the heading Income from other sources. Clarification is expected from the CBDT in this regard,” said Soni.
Need expert help with crypto tax filing?
Not only the crypto tax rules, even most crypto investors and traders are new as well. Experts say you may have trouble reporting your crypto earnings that are currently subject to tax. Therefore, professional advice may be required.
“Submitting ITR alone is entirely possible if all the legal positioning of crypto transactions is understood. Since crypto is a new asset class and the legal framework is still evolving, it is always better to seek expert advice, Bangar said.
“If someone is filing their crypto tax return for the first time and they don’t know how to calculate the profit, they may need some help or expert advice. After some time, when they get more experience calculating their returns, they can only file the crypto tax themselves. One thing should also be noted that you should seek the help of an accountant who knows the different aspects