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Taxes generally make people think that it is something boring and a cumbersome job for their regular assets, or for that fact, their newly introduced digital assets like cryptocurrencies. Planning ahead during the fiscal year of 2023-24, cryptocurrency holders in India definitely stand to know better, understand more, and fall in line when the time for taxation arrives.
This guide demystifies all kinds of vagueness about how Indians are to file crypto tax, thus ensuring that you follow the right way. This article aims to simplify, demystify and more importantly attempt to equip you better with knowledge and resources to confidently attempt the task. We take into consideration all the essential aspects, existing regulations, and useful tips to ensure that filing taxes goes right.
Although cryptocurrencies have gained widespread popularity, myths about their taxability still persists. It's important to realize that in India, cryptocurrencies and any activity related to cryptocurrencies are completely taxable. There might be very high penalties for not adhering to the same.
Moreover, the introduction of specific crypto tax provisions in the Union Budget 2022 and subsequent amendments have only magnified the need to be better informed. Familiarizing yourself with these related tax rules can help you avoid costly errors and enable you to report taxes cleanly.
The Indian government feels that crypto is a part of the Virtual Digital Asset (VDA) category. The Income Tax Act of 1961 enshrines the law with regard to the taxation of VDA, which is further supported by the below-mentioned clauses of the act: Section 115BBH, Section 194S.
Capital Gains Tax: Whatever the case might be, selling, swapping, or spending digital currencies in a VDA results in a flat 30% capital gains tax, regardless of whether gains are short-term or long-term in nature. Unfortunately, losses from VDA transactions do not offset capital gains from other sources.
1% Tax Deducted at Source (TDS): TDS of 1% has been levied on the transfer of VDAs over a certain limit, though not specifically defined yet. Cryptocurrency exchanges could well withhold this 1% TDS on behalf of the user while executing a trade on the platform. However, for trades conducted P2P on exchanges outside the country, the liability may be on investors to work out and deposit this 1% TDS themselves.
Taxation of Certain Transactions: Although, by and large the flat 30 percent applies to most transactions in cryptocurrencies, certain scenarios can have a different approach to taxation. Take for instance, with the form of revenue such as through mining cryptocurrency, through staking rewards or from airdrops and even receiving unwanted tokens is not different from the earned income and individuals may be taxed basing on their slab rate.
Documentation The most efficient way to file taxes is by ensuring proper documentation is done throughout the periods one has been carrying out business transactions. Documentation and Efficiency in Taxation One of the huge contributors in filing taxes accurately is keeping good records of all the activities throughout the time you have spent trading with cryptocurrencies.
• Dates of purchase and sale of all cryptocurrencies
• Purchase price and selling price of each unit of cryptocurrency
• Characteristics of these transactions: for example, via an exchange, including wallet addresses and transaction IDs.
• A record of each airdrop, staking reward, or mining income you have been paid.
All of this data can be consolidated into a well-sorted-out spreadsheet, or one could use crypto tax software.
In its new practice, for the FY 2023-24, the ITD has finally issued a separate head of filing to be made under the ITR forms. This included as "Schedule – Virtual Digital Assets (VDA)." Crypto gains or income must be reported in this schedule.
ITR-2 Form: If you report your gains from crypto as capital gains, you will likely have to use the ITR-2 form.
ITR-3 Form: If your earnings from cryptocurrency mining, airdrops, or staking rewards are not considered business income, then you may have to go ahead and select the ITR-3 form.
• Seek Professional Advice: When to Seek Professional Help
• You have a large book of cryptocurrency investments.
• You transact frequently.
• Your transactions are complicated.
• You're dealing with complicated transactions related to DeFi protocols or NFTs.
Tax professionals can provide tailored advice, help you stay up to date with current laws, and help you work through anything at all vague in your situation.
Understandably, compliance with crypto tax regulations in India may seem especially daunting at first. However, with all the relevant knowledge in place, through maintaining adequate records and further professional guidance, you shall go about this without any hassle. On-time and appropriate filing shall give you mental peace and bypass the widespread future hassles.
Long-term and short-term flat tax on profit from the sale of the cryptocurrency remains.
The loss of one cryptocurrency cannot be set off against another
Yes, a 1% TDS on the transfer of cryptocurrencies.
Tax experts advise that account holders should fill in the Schedule VDA to declare the gains in crypto businesses.
In accordance with the Income End TAX Act, though section 234 F. The penalty clause shall be Relevant were not filed on time
ITR for the financial year 2023-24 is due to be filed between July 1 and July 31 of the assessment year
The income out of each and every one of these as mining, airdrops, and staking made here would be at your respective slab rate.
Infrastructure expenditure incurred on crypto mining will not be added to the acquisition value and therefore the deduction cannot be made.
The gift of cryptocurrencies will be subject to taxation in the hands of the recipient.
You must maintain the details of such transactions in relation to any of the dealings in cryptocurrency with supporting details of date, amount, and nature of fees if any, to your tax returns.
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Disclaimer: Analytics Insight does not provide financial advice or guidance. Also note that the cryptocurrencies mentioned/listed on the website could potentially be scams, i.e. designed to induce you to invest financial resources that may be lost forever and not be recoverable once investments are made. You are responsible for conducting your own research (DYOR) before making any investments. Read more here.
