Six crypto tax mistakes to avoid when filing income tax for FY 2023-24

Unlike traditional investments, crypto losses cannot be offset against other capital gains.

It’s that time of the year again. Whether or not your crypto (virtual digital assets) portfolio has performed as per expectations, you are bound by the tax provisions associated with it.

Navigating the world of crypto taxes can be overwhelming, but understanding your obligations can save you from unnecessary mistakes. Here are six mistakes to avoid while filing your Income Tax Returns (ITR) with crypto income for the financial year 2023-24.

1. Neglecting Record-Keeping: Your purchase records are readily available on whichever exchange you might have chosen to buy crypto assets. So in case you haven’t been maintaining records of transactions, there’s nothing to worry about. You need information such as purchase dates, costs, selling prices, exchange platforms used, and even wallet addresses in order to calculate gains and report them accurately. Some of the information you might have to include depends on your asset ownership and transactions. Based on the kind of transactions you’ve done and your subsequent asset ownership for crypto, you would need specific documents to report gains, transactions, TDS charged, etc.

Exchange Trades Report: This includes all the spot trade history in the crypto-crypto and crypto–INR markets. It includes details like volumes, amounts, rates, fees, TDS charged (when applicable), and more.

P2P Trades Report: This constitutes all the P2P trades by the user. It also includes details like volumes, amounts, rates, fees, TDS charged (when applicable), and more.

OTC Trades Report: A report that includes all the details, such as volumes, amounts, rates, fees, TDS charged (when applicable), and more, can benefit a few selected users who have made OTC trades. The trade history will also be shown in this document.

Deposits/Withdrawals Report: This constitutes all the on-chain crypto deposits/withdrawals and INR deposits/withdrawals. It includes all the details, such as volumes, amounts, hash, transaction IDs, etc.

Additional Transfers Report: This includes all the other transfers made to the user’s account, such as referral bonuses and airdrops.

2. Ignoring TDS on Crypto: According to Section 194S of the Income Tax Act, a 1 percent Tax Deducted at Source (TDS) now applies to crypto transactions. This TDS will be reflected in your 26AS form. The buyer usually deducts the tax when paying the seller. When the transaction is done through an Indian exchange, the exchange generally deducts it as per norms.

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3. Missing the Match: 26AS & AIS: Your 26AS form, issued by the Income Tax Department (ITD), summarises your income from various sources, including crypto gains and associated TDS deducted by buyers/exchanges. Review your 26AS for discrepancies and ensure it aligns with your records and Annual Information Statement (AIS).

4. Not choosing the right ITR Form: Depending on your income profile, file either ITR-2 (for individuals with capital gains) or ITR-3 (for business-related income). These forms include a section on Schedule VDA specifically for reporting crypto income.

5. Not taking additional factors into account: Unlike traditional investments, crypto losses cannot be offset against other capital gains. However, you must still report these losses. Crypto received as gifts from people you’re not related to may be tax-exempt up to Rs 50,000, after which a certain tax percentage applies. Crypto tokens received via airdrop are taxed at 30 percent.

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6. Not considering a second opinion: Tax filing for crypto assets is still relatively new and you do not want to end up in hot water for wrong filing of information. In addition to reading blogs and other educational materials, consider using tax filing tools or asking for an expert opinion to be doubly sure. This will minimise errors and subsequent discrepancies.

By avoiding these mistakes, you can navigate your FY 2023-24 crypto tax filing with confidence. Remember, record-keeping, utilising tax information tools, and accurate ITR filing are key.