As cryptocurrency investment increased in India, the Income Tax Department introduced well-defined rules for taxing virtual assets. Knowing how to file crypto tax in India has become a must for all investors and traders who handle Virtual Digital Assets (VDAs) such as Bitcoin, Ethereum, or NFTs. Here’s a step-by-step guide to crypto tax filing and ITR filing.
Comprehending Crypto Tax in India
-
Flat 30% Tax on Crypto Profits
According to the Indian tax system, any profit from the exchange of cryptocurrencies or VDAs is levied at a flat rate of 30%. This rate is charged irrespective of whether the digital asset is held for short term or long term. It is charged irrespective of the income slab of the investor.
Further, there is a 4% cess on health and education, which increases the effective tax rate to 31.2%.
-
1% TDS on Crypto Transfers
From July 1, 2022, a 1% Tax Deducted at Source (TDS) is levied on the sale or transfer of crypto assets. The TDS is deducted by the exchange or from the buyer if it is a peer-to-peer (P2P) transaction. The amount deducted reflects in your Form 26AS and can be claimed at the time of filing ITR.
-
No Set-Off or Carry Forward of Losses
One of the major things about crypto tax in India is that you cannot offset losses from cryptocurrencies against any other gains, even other cryptocurrency gains and you cannot forward them to a later financial year. Even if you have a loss, you are required to report it, but you will get no relief from tax.
-
Mining, Airdrops, and Gifts
- Mining Rewards: Income from mining is fully taxable at 30%. Since the cost of mining (electricity, hardware) is not allowed as a deduction, the entire value received is taxable.
- Airdrops: Free tokens received through airdrops are also taxed at 30%.
- Gifts: Crypto received as a gift is taxable if its value exceeds ₹50,000 and the giver is not a relative as per income tax definitions.
How to File Crypto Tax in India – Step-by-Step Guide
Step 1: Keep Accurate Transaction Records
First, keep records of all your crypto transactions. This covers:
- Date of buying and selling
- Type of crypto asset
- Amount purchased and sold
- Cost price of buying and selling
- Transaction charges
- Exchange or wallet used
- TDS deducted
Keep these records in an Excel sheet, or use crypto portfolio tracking apps providing tax reports.
Step 2: Identify Your Income Type
You can report your crypto income as:
- Capital Gains: If you are an investor who keeps crypto assets for the long term or for wealth generation.
- Business Income: If you deal on a regular basis or run a business of professional trading.
Based on how you categorize your income, the ITR form and computation method will vary.
Step 3: Select the Appropriate ITR Form
The right form is based on your type of income:
- ITR-2: If you’re reporting capital gains and don’t have business income.
- ITR-3: If you’re reporting crypto income as business income (regular trading, professional trading setup, etc.).
Don’t use ITR-1 or ITR-4 for crypto income, as it doesn’t support the reporting of VDAs.
Step 4: Complete ‘Schedule VDA in the ITR Form
In newer ITR forms, the Income Tax Department has provided a special section named Schedule VDA. Here is what you have to mention:
Type of VDA (e.g., Bitcoin, Ethereum, NFTs)
- Date of purchase and sale
- Cost of purchase
- Sale proceeds
- TDS deducted, if any
Make sure this schedule is filled properly to prevent mismatch with Form 26AS or Annual Information Statement (AIS).
Step 5: Check TDS in Form 26AS and AIS
Form 26AS and AIS will reflect any TDS deducted on your cryptocurrency transactions. Match this with your records to confirm there are no discrepancies.
If the TDS has been deducted by the buyer or exchange, you can claim it when you file your ITR, which will decrease your final tax liability.
Step 6: Calculate Final Tax Liability
After including your crypto gains and other income, compute your total tax liability. You can use online tax calculators or consult a tax professional.
Make sure to add the 4% cess to your 30% crypto tax rate.
Step 7: File ITR Before the Due Date
ITR filing due date (in case of non-audit situations) is normally July 31 of the assessment year. For FY 2024-25 (AY 2025-26), ensure you file on or before July 31, 2025, so that there are no penalties and interest charges.
File through the Income Tax e-filing portal or reliable tax filing websites.
Read also: CBDT Announces Extended Due Date for ITR Filing
Common mistakes to avoid:
- Not Reporting Losses: Despite losses not being eligible for adjustment, they have to be reported to prevent audit triggers.
- Incorrect Form Use: Utilizing ITR-1 or ITR-4 for crypto gains will lead to rejection or questioning.
- Incorrect TDS Entries: Make sure the TDS shown is equal to what’s in Form 26AS.
- Gifting or Airdrops Ignored: Tokens or crypto gifts, free of cost, are taxable and not to be ignored.
- No Maintenance of Records: Crypto exchanges don’t always send detailed annual reports. Keeping your own record is important.
FAQs on Crypto Tax in India
Q1. Is cryptocurrency income taxable in India?
Income earned on cryptocurrency is taxable in India at a flat rate of 30% under Section 115BBH.
Q2. Do I pay tax since I only received crypto as a gift?
Yes, if the value is over ₹50,000 and the giver is not a relative, it’s income taxable.
Q3. Can I claim losses on crypto against my stock market profits?
No, crypto losses cannot be adjusted against any other income.
Q4. Are there TDS on crypto transactions?
Yes, 1% TDS on transfer of VDAs is applicable and has to be deducted by the exchange or buyer.
Q5. What ITR form do I need for crypto income?
Use ITR-2 if you are an investor. Use ITR-3 if you are a trader declaring crypto as business income.
Q6. Do I need to file ITR if my only income is from crypto and it’s under the exemption limit?
Yes, you must file ITR if you have crypto transactions, regardless of income threshold.
Q7. Is crypto mining income taxable?
Yes, mining rewards are fully taxable at 30% with no deductions allowed.
Q8. What happens if I don’t report my crypto gains?
Non-disclosure will attract penalties, interest, and prosecution under the Income Tax Act.
Conclusion
Crypto tax filing in India may look daunting, but with records and knowledge of the tax regulations, it’s easily manageable. With regulations still changing, compliance not only prevents legal trouble but also provides hassle-free investment experiences in the crypto world.
Simplify your crypto tax filing with Estartup, your go-to one-stop solution for seamless ITR filing and professional tax compliance. From precise VDA reporting to return maximization, our experts keep you audit-ready at all times. Begin your crypto tax journey now with Estartup and file confidently.
If you need further assistance or have any doubts, our experts are here to help you. Call us: 8881-069-069.
Download E-Startup Mobile App and Never miss the latest updates narrating to your business.