The Indian government has not yet granted legal tender status to cryptocurrencies. In fact, in April
2018, the Reserve Bank of India (RBI) issued a circular that prohibited banks from dealing with or
providing services to any individual or business that dealt in cryptocurrencies. However, this ban was
overturned by the Supreme Court of India in March 2020 on constitutional grounds. You should note that:
There has been no formal regulation of cryptocurrencies in
India.
Government is working on a bill to create a framework for a
digital rupee issued by the RBI.
Income Tax Department has not yet provided any specific
guidance on the tax treatment of cryptocurrencies.
Gains from cryptocurrency transactions would be subject to
capital gains tax.
Taxation of cryptocurrency
The fact that cryptocurrencies are not yet legalized by the Reserve Bank of India (RBI) does not exempt
them from taxability. Any income earned from cryptocurrency transactions, whether through sale, exchange
or use as payment for goods or services, is subject to tax under the Income Tax Act of India. Gains from
cryptocurrency transactions can be classified as either business income or capital gains for tax
purposes, depending on the nature and intention of the transactions.
Cryptocurrency as Business Head:
If an individual is engaged in regular cryptocurrency trading as a business activity, the gains or losses
from such transactions will be treated as business income or loss. This would be applicable if the
individual is involved in cryptocurrency trading as a profession or business activity, and not as an
investment.
The tax implications for cryptocurrency trading as a business activity in India will depend on the
individual's tax bracket and business expenses. Any profits earned from cryptocurrency trading as a
business activity will be taxed as per the applicable income tax slab rate, and any business expenses
incurred can be deducted from the taxable income.
Cryptocurrency as Capital Gain and Capital loss:
In India, gains from cryptocurrency transactions are considered as capital gains or losses if they are
classified as investments. If the sale value of the cryptocurrency is higher than the cost, it will be
treated as a capital gain, and if the sale value is lower than the cost, it will be considered a capital
loss.
The tax implications for capital gains on cryptocurrency transactions in India will depend on whether
they are short-term or long-term investments. If the cryptocurrency assets are held for less than 36
months, they will be classified as short-term capital gains and taxed at the applicable income tax slab
rate. If the cryptocurrency assets are held for more than 36 months, they will be classified as
long-term capital gains and taxed at the rate of 20% with indexation benefits.
Recent Update in the Taxation System of Cryptocurrency
In the outcome of Union Budget 2022, it was laid down that the taxation rate for virtual digital assets
like Cryptocurrency, NFTs, etc will be 30% (plus relevant surcharge and 4% cess) (Refer Section 115BBH
of the Finance Act, 2022). Its relevant to note that:
Cryptocurrency is classified as Virtual Digital Assets (VDAs)
as per section 2(47A) of the Income Tax Act, 1961. While reporting income from the transfer of digital
assets, there would be no deduction except for the cost of acquisition.
There will be no set-off available against any other income
in case of loss incurred from digital assets.
The receiver of the digital assets in the form of a gift will
be liable to pay tax.
The Income Tax Return (ITR) forms for the fiscal year 2022-23
now feature a new section named Schedule - Virtual Digital Assets (VDA) to report gains from
Crypto/NFTs. The deadline for filing the income tax return for FY 2022-23 is July 31, 2023. However, if
you miss the deadline, you can submit a belated return by December 31, 2023.
File ITR For Cryptocurrency?
You absolutely must file your crypto taxes for the financial year 2022-23 (the assessment year 2023-24)
using either the Income Tax Form ITR-2 (if you're reporting as capital gains) or ITR-3 (if you're
reporting as Business Income).
Please note that the current versions of the ITR-2 and ITR-3 forms have a whole section dedicated to
reporting your crypto gains or income. You must accurately report your crypto profits under the
gloriously named "Schedule VDA" in your tax return. So don't delay, get your crypto taxes in order ASAP!
If you earn income or gains from Virtual Digital Assets (VDAs), it is now mandatory to provide specific
details in the new schedule for VDAs included in the ITR forms. These details include the date of
acquisition, the date of transfer, the head under which income is taxed (capital gains), and the cost of
acquisition. If you acquired the VDA as a gift, the form will require you to enter the amount on which
tax was paid under section 56(2), or the cost to the previous owner in any other case. Furthermore, you
will be required to report your income from the transfer of VDAs or enter "nil" in case of a loss. To
avoid any legal consequences, it is crucial to provide these details accurately in the ITR forms if you
earn income or gains from VDAs.
Know The Steps Of Filing ITR
Collect all necessary financial documents such as bank
statements, trading statements, etc.
Download the ITR-2 or ITR-3 form depending on whether you
want to report your gains as capital gains or business income.
Fill in personal details such as name, PAN, Aadhaar number,
etc.
Fill in income details including salary, interest income, and
cryptocurrency gains.
Fill in details in Schedule VDA, including date of
acquisition, date of transfer, head under which income is taxed, and cost of acquisition.
Calculate your tax liability by adding your cryptocurrency
gains to your total taxable income.
Verify all details entered in the form and submit it
electronically using Aadhaar or digital signature.
E-verify the ITR using Aadhaar OTP, net banking, or bank
account-based validation.
Section 115BBH Of The Finance Act 2022
Starting from AY 2023-24, Section 115BBH of the Finance Act 2022 will be applicable to you. This
provision states that any income from the transfer of virtual digital assets (VDA) will be taxed at a
rate of 30 percent, and you will not be allowed to claim deductions for any expenditure except for the
cost of acquisition. Additionally, any losses from the transfer of VDA cannot be set off against any
other income, including capital gains, business profits, salary, or other sources of income. Moreover,
you cannot carry forward such losses to the subsequent assessment years.
Insertion Of Clause 47A In Section 2 Of The Income Tax Act, 1961
The government has introduced a new clause, 47A, in Section 2 of the Income-tax Act, 1961, to define the
term "Virtual Digital Asset." This clause has been added to tax cryptocurrencies, non-fungible tokens
(NFTs), and similar instruments. According to this clause, a virtual digital asset can be any
information, code, number, or token (not being Indian or foreign currency) that provides a digital
representation of value exchanged with or without consideration. It can function as a store of value or
a unit of account, including its use in any financial transaction or investment. It can be transferred,
stored, or traded electronically. The definition also includes non-fungible tokens or any other token of
similar nature, as well as any other digital asset specified by the Central Government through a
notification in the Official Gazette.
.jpg)