homepersonal finance NewsITR filing: How to report cryptocurrency income in income tax return

ITR filing: How to report cryptocurrency income in income tax return

Income tax return filing: A common confusion that prevails among taxpayers relates to tax on earnings accruing from investments in cryptocurrencies and other similar digital currencies. Here's an explainer on the same

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By CNBCTV18.com Mar 16, 2024 6:00:08 PM IST (Updated)

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ITR filing: How to report cryptocurrency income in income tax return
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:
  • No deductions are allowed for crypto investors except for acquisition cost deductions.
  • Loss from digital assets cannot be set off against other income.
  • Capital gains on crypto income are taxed at a flat rate of 30%, with 1% TDS paid on each transaction (except for crypto purchased with INR and crypto transferred between exchanges/wallets owned by the same individual).
  • 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.

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