ITR Filing: All You Need To Know About Crypto Taxation

India is one of the biggest and fastest-growing cryptocurrency markets in the world.The cryptocurrency revenue in India is expected to grow at a CAGR of 9.83% between 2023 and 2027, which is projected to reach USD 324 million by 2027.
The RBI highlighted the operational, legal, and security risks associated with virtual currencies via a circular warning in 2013.This initial approach by the RBI indicated the long-term regulatory stance of the government surrounding the digital assets market in India.
From time to time, the government issued several circulars reiterating its stance on cryptocurrencies, but it was only during Union Budget 2022 that the government of India introduced a taxation policy for cryptocurrency assets.
Despite introducing a crypto tax policy, the classification of cryptocurrencies for taxation purposes remains a complex matter.These complexities pose significant challenges for both individuals and businesses involved in the crypto sector.
As per the new tax policy, a flat 30% tax and an additional 4% cess on tax are levied on any profits made from the transfer or transactions of cryptocurrencies.Further, a 1% TDS is mandated to be deducted by the buyer at the time of sale.
Currently, the Income Tax Act treats all Virtual Digital Assets (VDAs), vis-à-vis cryptocurrencies, Non-Fungible Tokens, and other VDAs homogeneously.While there are striking similarities between NFTs and cryptocurrencies, they have different applications and characteristics.

The Income Tax Act also does not address the characteristics of different VDAs.
As per Section 115BBH of the Income Tax Act, crypto investors are also prohibited from offsetting crypto losses from one VDA against crypto gains from another VDA.
For example, a person buys Bitcoin (BTC) for INR 1 lakh and sells it for INR 80,000, incurring a loss of INR 20,000In the same calendar year, he also buys Ethereum (ETH) for INR 80,000 and sells it for INR 90,000, making a profit of INR 10,000.Despite a loss from ETH, the person will pay a 30% tax on the profits made on BTC.
The crypto regulatory framework is evolving, and necessary measures are being taken to educate investors and traders that can help them make informed decisions and comply with the taxation norms.
Filing cryptocurrency taxes can be a daunting task, especially for the first-time crypto tax filer.It is vital to consider the following tips and factors while filing ITR:
It is also crucial to determine the cost basis of the transaction in INR value.When users transact BTC to USDT or BTC to ETH, it is important to calculate the INR value of the transaction for apt crypto taxation.For Short-Term Capital Gains, subtract the purchase price from the sale price to determine the gain.For Long-Term Capital Gains, calculate the indexed cost of acquisition by adjusting the purchase price for inflation using the Cost Inflation Index (CII).
Individuals involved in cryptocurrency trading must navigate the nuances of crypto taxation to ensure compliance with the law.By understanding the tax implications and seeking tips to file ITR on crypto gains, crypto enthusiasts can confidently fulfill their tax obligations while maximizing their gains.Investors with the right knowledge and careful planning can embrace the potential of cryptocurrencies while ensuring a smooth and transparent tax filing process.
The cryptocurrency tax landscape in India is continuously evolving, and it’s crucial to stay updated with the latest regulations and guidelines issued by the tax authorities.It is essential for individuals involved in crypto trading to leverage digital platforms and technologies while filing crypto taxes to ensure tax compliance and a seamless experience.
The views and opinions stated in the content belong to Avinash Polepally, Senior Director – Crypto Business at ClearTax.
The recommendations made above are by market analysts and are not advised by either the author, nor Greynium Information Technologies.The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. advises users to consult with certified experts before making any investment decision