Under the provisions of the Income Tax Act, a taxpayer who has an annual income greater than Rs 2.5 lakh or who has received a payment for which tax has been deducted at source (TDS) must file an Income Tax Return (ITR) and disclose all income .
However, many are unsure how to show cryptocurrency investment returns in the ITR as there is no clarity about it.
“In India, the cryptocurrency sector is at a very early stage. Much needs to be done in terms of regulations and taxes. Cryptocurrency income should be taxed as short or long term capital gain based on the length of time it was held as an investment, ”said Kumar Gaurav, CEO and Founder of Cashaa.
In fact, the Reserve Bank of India (RBI) had banned the holding or trading of cryptocurrencies in India. However, the RBI ruling was overturned by the Supreme Court last year to pave the way for investing in cryptocurrencies in India.
However, due to the confusion, the type of income from investing in cryptocurrencies has not yet been defined. So there is no clarity about the taxation of such income.
“The tax impact on profits or gains from holding cryptocurrencies depends on the nature of whether it is a currency or a property. In general, cryptocurrencies are used to exchange goods or services. Currently, in India, cryptocurrencies are not recognized as a currency by the RBI, and neither does the Income Tax Act define them as a currency. Cryptocurrencies can therefore be viewed neither as an Indian currency nor as a foreign currency as a currency. Hence, for income tax purposes, this is considered property and the tax implications are similar if someone else owns property. In other words, the profit or profits from cryptocurrencies can be taxed either as business profit if it is acquired with the intention of making profit through trading / mining, or as capital gain if it is acquired with the intention of creating wealth ” he told Gopal Bohra, partner, NA Shah Associates.
“In the absence of any clarity, the tax implications will be discussed on the basis of the existing tax law. However, the tax department needs specific clarifications. In ITR form, the disclosure of profit or gain from cryptocurrency transactions must be disclosed based on the taxpayer’s position, whether it is a capital gain or a business profit, “added Bohra.
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However, it is not appropriate not to disclose crypto investment income just because there is no clarity about taxation.
“While cryptocurrencies have not yet been assigned to any tax class. However, the income tax department can use PAN to monitor the profits of cryptocurrency investors registered through KYC / AML compliant exchanges, ”said Sumit Gupta, CEO and co-founder of CoinDCX.
“The level of income from investments in cryptocurrencies can be highlighted under” Income from other sources, “said Gupta.
“The fact that revenue from cryptocurrencies is considered taxable income is a positive indicator as it also implies that crypto is viewed as a potential asset class,” he added.
However, the lack of clarification on crypto revenue taxation can lead to disputes.
“The taxation of cryptocurrencies is a controversial issue and would definitely lead to litigation. The Income Tax Act does not explicitly regulate the taxation of cryptocurrencies at the moment. With this in mind, based on the guidelines available for determining the type of income, it is generally assumed that crypto profits are speculative income and should be reported under income under the head profits and profits of companies or professions, ”said Divakar Vijayasarathy, Founder & Managing Partner , DVS Advisors LLP.
“However, those who have made minimal transactions and have held cryptocurrency for an extended period of time may disclose the revenue under the main revenue from other sources to avoid litigation. The disclosure of the same under capital gains is disputed, since the term “property” is not defined according to the definition of capital assets and the consideration of the same assets as capital assets is controversial. However, we believe that they should be equated with other publicly traded companies in securities. The taxation of cryptocurrencies is currently a blind spot with different options until the government has made its position clear, ”added Vijayasarathy.
Therefore, it is better to consult your tax advisor before disclosing your crypto earnings for income refunds.
“All income from crypto trading is taxable like all other income and should be reported in IT returns. However, we recommend our users to consult with experts such as accountants on how to declare this income in ITR. I also believe that crypto regulation will make this clearer as we will understand how crypto is classified and taxed in India, ”said Nischal Shetty, CEO of WazirX.
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