Crypto sales and taxes: A simple guide to reporting digital assets in ITR
With rising crypto investments in India, knowing how to disclose and report digital assets in your income tax return (ITR) is crucial to stay compliant.
Learning the tax rules for crypto assets The Government of India has classified cryptocurrencies, NFTs, and similar other digital assets in the list of Virtual Digital Assets (VDAs). As per the Finance Act, 2022, the profits arising from the transfer of such assets are charged at a rate of 30%, plus any surcharge and cess. Deductions (except cost of acquisition) can't be claimed, nor losses on crypto set off against other income. Investors thus need to understand very clearly how their trades and sales impact their tax expense.
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How to report crypto income in your ITR To ensure transparency, the Income Tax Department has made it compulsory to report crypto gains separately. You must report VDA income under "Income from Other Sources" or "Capital Gains" depending on the nature of transactions. The ITR forms have a specific schedule for Virtual Digital Assets, where you would be required to give information such as date of acquisition, date of transfer, cost of acquisition, and selling value. Maintaining the proper records of transactions thereby becomes necessary to avoid mistakes or penalties.
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TDS on crypto transactions: What you should know In addition to 30% profit tax, another important area of compliance is the 1% Tax Deducted at Source (TDS) on cryptocurrency trades. Effective July 1, 2022, exchanges and buyers will have to withhold the TDS from applicable trades over ₹10,000 in a financial year. Even though the deduction will be trivial, it will enable the government to keep an eye on crypto usage and enforce tax compliance. Investors need to check Form 26AS or AIS to ensure that the TDS so deducted is correctly credited in their tax accounts.
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Common mistakes to avoid while filing Majority of taxpayers do not report crypto assets or do not report gains, assuming virtual currencies are out of the tax net. However, the Income Tax Department is increasing its vigil level, using data from exchanges and banks to track transactions. Failure to report appropriately can invite penalties, interest, or even notices. A common mistake is not distinguishing between short-term and long-term profits, or mixing crypto profits with other sources. Re-entering previously entered items prior to filing your ITR can prevent future agony.
Forward planning to facilitate smooth compliance Tax reporting on crypto sale would be onerous, but thought out correctly, it is possible. Keeping meticulous records of every trade, monitoring crypto portfolios, and getting a tax professional to advice on your behalf can ensure precision. It is also important to keep oneself abreast of shifting tax laws around VDAs since regulatory shifts are in the offing. Reporting your crypto trades honestly and on time not only keeps you compliant but makes you reliable as a solid player in the eyes of tax authorities.
