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Mastering Crypto Tax Filing for FY 2023-24: Your Complete Guide

(By Mr. Rajagopal Menon, Vice President, WazirX)

Crypto has transitioned from a niche interest to a significant financial asset for many individuals. However, with its burgeoning popularity comes heightened scrutiny from tax authorities. The Indian government has provided clear guidelines on the taxation of crypto transactions. As the deadline for filing income tax returns for FY 2023-24 (Assessment Year 2024-25) looms closer, it’s imperative for crypto investors to be well-prepared for the tax filing process. Here’s an exhaustive guide on what you need to ace your crypto tax filing:

Understanding the Tax Forms

As the first step, it’s essential to determine the appropriate Income Tax Return (ITR) form to be filed. For reporting income from transferring cryptocurrencies and Virtual Digital Assets (VDAs), individuals should use either ITR-2 or ITR-3. These forms include a dedicated section called Schedule Virtual Digital Assets (Schedule VDA), where details of crypto transactions need to be provided.

  • ITR-2: Suitable for individuals with capital gains from investing in VDAs and no business income.
  • ITR-3: Designed for individuals with business or professional income, including income from VDAs or any other business.

Schedule Virtual Digital Assets (Schedule VDA)

This schedule mandates the reporting of all VDA transactions, including acquisition dates, sale dates, sale value, acquisition cost, and profit or loss amounts. Accurate reporting in Schedule VDA is crucial for determining tax liability on gains and complying with tax regulations.

Calculating Tax Liability

The calculation of tax liability for crypto gains involves a simple arithmetic operation: deducting the cost of acquisition from the selling price. The resulting gains are then taxed at a flat rate of 30%. Detailed record-keeping of transactions is vital for accurately calculating gains or losses and determining tax liability.

Specific Tax Implications for Different Transactions

Different types of crypto transactions attract specific tax implications:

  • Purchasing Cryptocurrencies is generally tax-free when done with Indian rupees. However, a 1% TDS deduction applies if done through peer-to-peer or foreign exchanges.
  • Selling Cryptocurrencies incurs a 30% tax on the gain with a 1% TDS deduction on the transaction.
  • Wallet Transfers are tax-free if ownership remains unchanged, as it’s not a commercial transaction.
  • Airdrops and Forks are subject to a 30% tax in the hands of the receiver.
  • Crypto Gifts are exempt from tax if from immediate family members or valued at less than Rs 50,000 (in the same financial year). Amounts exceeding this threshold are subject to income tax in the hands of the receiver.
  • Mining and Staking Rewards are taxed based on applicable rates, with a 30% tax levied upon selling or utilizing rewards.

Handling Crypto Losses

Losses from the transfer of VDAs cannot be set off against any income, necessitating their reporting as nil. This means that even if one Bitcoin is sold at a profit and another at a loss, a 30 percent tax is owed to the government solely on the profit from one token.

Reporting and Compliance

Maintaining accurate records of transactions, determining the classification of crypto assets, and staying updated on evolving tax regulations are essential for tax reporting and compliance. It’s crucial to report crypto gains accurately to avoid penalties from the Income Tax Department.

Necessary Reports For Crypto Tax Filing

There are three reports taxpayers might need:

  • Complete Trading Report: This report provides a comprehensive overview of all crypto purchases and sales.
  • Profit & Loss Report: This report is specifically designed for reporting gains and losses resulting from the disposals of crypto assets.
  • Other Gains Report: This report is used for derivatives and other profit-and-loss (PnL) products in the crypto space.

Crypto Tax Filing Checklist

  • Select the Correct ITR Form: Opt for either ITR-2 or ITR-3.
  • Gather Transaction Details: Procure comprehensive details encompassing acquisition dates, sale dates, sale value, and acquisition cost.
  • Complete Schedule VDA: Accurately report crypto transactions in Schedule VDA of the selected ITR form.
  • Calculate Tax Liability: Compute gains or losses and apply the flat tax rate of 30% on crypto gains.
  • Check for TDS Deductions: Verify TDS deductions on your crypto trades and ensure accurate reflection in Form 26AS. Claim TDS deducted correctly while determining the final tax liability.

Empowering Users Through Knowledge and Tools

In emphasizing the broader significance of equipping crypto investors with essential resources, Rajagopal Menon, VP at WazirX, underscores the importance of education and tools in navigating crypto taxation. He states: “Ensuring investors have the necessary knowledge and tools to manage their crypto tax obligations is paramount. By providing educational resources and access to tools like downloadable trading reports and P/L statements, we at WazirX are dedicated to empowering users to file their taxes accurately and on time.”

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