Filing ITR for crypto gains? Here’s what you need to know | Simply Save

This year would be the first time when crypto investors would be filing taxes under the new taxation regime, for gains made in financial year 2022-23.

The taxation framework for crypto assets, or virtual digital assets, was introduced by the government last year.

In the Union Budget for the financial year 2023, the government said that gains arising out of crypto assets would be taxed at 30 percent irrespective of the individual’s income tax slab rate. In addition, a 1 percent tax deducted at source (TDS) was made applicable on each transfer of such assets.

In today’s Simply Save Podcast, Indy Sarker, co-founder of TaxCryp, a crypto tax solution company, joins us to talk about cryptocurrency taxation. He tells us how crypto gains are taxed, the difference between taxation norms for investors and professionals, tax aspects for airdrops and non-fungible tokens (NFTs) and what investors should keep in mind when filing Income Tax Returns (ITR) form this year.

Here’s a summary of what Sarker said:

1. Investors are not allowed to set off losses in one crypto asset against another. This means that if you sold one bitcoin at a profit and another one at a loss, you still owe 30 percent tax to the government on the profit you booked in one token.

2. One bitcoin moving from one of your accounts, or one wallet to another wallet is seen as an internal transfer. So that's not seen as a commercial transaction. It only gets taxed when it changes hands from one tax entity to another.

3. In India the introduction of 1 percent TDS by the government was seen as a big negative for crypto investors. It took down a lot of volumes initially, and once people understood the provisions somewhat, volumes started to pick up again.

4. Once you receive crypto assets as payment for services rendered, you would have to worry about what's the cost basis for that asset that you've got. So this is one area where remains some uncertainty, and tax advice is certainly recommended.

5. When you receive an airdrop, it's the recipient who has to worry about what their tax obligation is likely to be.

6. We strongly advise investors to disclose all their centralised exchange wallets, international wallets as well as your DEFI (decentralised finance wallets) in the income tax form.

7. Ensure that all the TDS that has been collected on your trades by the exchanges – because it's been filed against your PAN card – that it's reflected accurately in your Form 26.

8. There is a section within the new income tax form that relates to crypto gains. Make sure that your crypto gains are reflected in that section at the time of finalisation of your tax returns.

9. There are some complexities around crypto taxation such as airdrops, liquidity pools, derivatives and mining. If there are a lot of transactions related to these aspects, get some professional advice.

10. We sense that a lot of crypto investors that are coming onto the tax net have not previously been tax-filing individuals. Therefore, handholding would be necessary for them to drive proper compliance.