Income Tax Return (ITR) filing is compulsory for individuals earning a specified amount of income in a year. However, there is confusion among taxpayers on how the earnings from investments in cryptocurrencies such as bitcoins, and Ethereum should be disclosed in the ITR.
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Abhinav Soomaney, founder at Cryptotax International emphasised the importance of understanding the nuances of reporting crypto earnings.
"Crypto taxation is complex due to transactions on exchange platforms, wallets, staking protocols, and P2P trading. Obtaining data from the blockchain is crucial for on-chain activity. However, there is a lack of knowledgeable professionals in this field, making specialided guidance essential for cryptocurrency taxation," he said.
He advised investors to first prepare a comprehensive capital gain/loss report for their crypto activities.
"After preparing your capital gain/loss report for crypto activity, log into the Income Tax Portal and begin your ITR-2," he suggested.
He outlined the steps to report crypto earnings within the ITR: "Report capital gains on Schedule VDA, along with other income from crypto. Then investors need to complete the necessary schedules, proceed to verification, and filing."
Soomaney clarified that capital gains tax is applicable only when crypto is sold at a profit.
Holding onto tokens without selling results in an unrealised capital gain/loss, which is not taxable.
He underscored several key points for taxpayers to consider:
Soomaney further highlighted various calculation methods available for investors, such as FIFO (First In, First Out), LIFO (Last In, First Out), and HIFO (Highest In, First Out). He suggested that HIFO might be the most beneficial for minimising taxable gains.
First Published: Mar 16, 2024 1:32 PM IST
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