Crypto Tax Filing For FY 2023-24: From Calculations To Pitfalls, Here’s A Quick Guide

ailure to file crypto taxes accurately or missing the deadline can lead to undesirable consequences. Under Section 234F of the Income Tax Act, late filers may incur a penalty of Rs 5,000.

It's essential to note that losses incurred from VDA transfers cannot be offset against other income. ( Image Source :Kanchanara/Unsplash )

The Indian crypto market has experienced a surge in popularity of late, drawing in a diverse array of investors eager to capitalise on this emerging asset class. However, as the market matures, so too does the need for clarity and compliance when it comes to taxation.

With the Indian government laying out clear guidelines for taxing crypto gains, investors must familiarise themselves with the process to ensure compliance and mitigate any potential risks.

Understand Tax Forms

The first step in navigating the crypto tax landscape is understanding the tax forms. Depending on the nature of one's income, individuals can choose between Income Tax Return (ITR) forms such as ITR-2 or ITR-3.

Those solely reporting capital gains from Virtual Digital Assets (VDAs), can just use ITR-2, while individuals with business or professional income, including VDA gains, should opt for ITR-3.

Calculate Tax Liabilities

Calculating tax liability for crypto gains follows a straightforward process. By subtracting the cost of acquisition from the selling price, investors arrive at their taxable profit, which is then subject to a flat tax rate of 30 per cent. To ensure accurate calculations, maintaining detailed records of all transactions is imperative.

Understand Tax Differentiations

Different crypto transactions attract varying tax implications. While purchasing cryptocurrencies with Indian rupees is typically tax-free, transactions made through peer-to-peer or foreign exchanges incur a 1 per cent Tax Deducted at Source (TDS). Selling cryptocurrencies triggers a 30 per cent tax on gains, with an additional 1 per cent TDS deduction.

Meanwhile, wallet transfers remain tax-free if ownership remains unchanged, and airdrops, forks, and mining rewards are subject to a 30 per cent tax.

It's essential to note that losses incurred from VDA transfers cannot be offset against other income. Despite this, they must still be reported, albeit showing as a "nil" value. Consequently, even if an investor realises a loss on one token, they may still owe taxes on profits from other transactions on the same token.

Compile Reports

For efficient tax filing, investors may need to compile various reports, including complete trading reports, profit & loss statements, and other gains reports. These documents provide a comprehensive overview of all crypto transactions, facilitating accurate reporting and compliance.

Crypto Tax Penalty

Failure to file crypto taxes accurately or missing the deadline can lead to undesirable consequences. Under Section 234F of the Income Tax Act, late filers may incur a penalty of Rs 5,000. Moreover, interest charges under Section 234A, set at 1 per cent per month or part thereof, can quickly accumulate, exacerbating financial burdens.

Given the complexity of crypto taxation and the potential for errors, seeking expert advice from professionals well-versed in this field is highly recommended. Experienced tax advisors can offer tailored guidance, helping investors navigate the nuances of crypto taxation and minimise the risk of non-compliance.

As the Indian crypto market matures, investors must prioritise compliance and understanding of tax obligations. By familiarising themselves with tax forms, maintaining accurate records, and seeking expert advice, investors can navigate the crypto tax filing with confidence, ensuring compliance while maximising their investment potential.

(The author is the Vice President of WazirX)

Disclaimer: The opinions, beliefs, and views expressed by the various authors and forum participants on this website are personal and do not reflect the opinions, beliefs, and views of ABP Network Pvt. Ltd. Crypto products and NFTs are unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions. Cryptocurrency is not a legal tender and is subject to market risks. Readers are advised to seek expert advice and read offer document(s) along with related important literature on the subject carefully before making any kind of investment whatsoever. Cryptocurrency market predictions are speculative and any investment made shall be at the sole cost and risk of the readers.