Those who invest their money in cryptocurrencies must know how to report their gains when they file their income tax return.
A lot of people across the world have been investing a heavy amount in cryptocurrencies, also called “crypto” or “tokens”. In the past couple of years, the number of people investing in cryptocurrencies has grown significantly in India.
While presenting the Union Budget 2022-23, Finance Minister Nirmala Sitharaman announced an important update for all those who invest in cryptocurrencies. The FM announced that from this year, 30 percent of tax will be levied on cryptocurrency gains and incomes.
It must be noted that as of now, there is no specific guidance/specific tax provisions on taxation of cryptocurrencies in the Income Tax Act 1961. Those who invest in cryptos must make sure that they are reporting their profits in their taxes, as failure to do so can have consequences.
One always has the option to report their gains under in their income tax returns under the categories business income or capital gains. The classification of the same will depend on the investors’ intention and nature of these transactions.
According to the presentation of the Union Budget 2022, here is all you need to know about the taxation on cryptocurrency gains-
- 30 percent tax will be levied on income from the transfer of virtual digital assets such as cryptos and NFTs.
- While reporting the income tax on crypto gains, no deduction, except the cost of acquisition will be allowed.
- The loss from cryptos or any digital assets can’t be set off against any other income.
- The gifting of digital assets will be taxable in the hands of the receiver.
Cryptocurrency tax under business income
If a person is frequently investing in cryptos and is trading in high volume with a significant gain, the profit from cryptocurrency will be taxed as business income. It must be noted that the taxation of cryptos will be different for each investor and they must seek expert advice before filing their ITR.
Cryptocurrency tax under capital gains
If a person has invested in cryptocurrency looking for a long-term appreciation in value with a low number of trades, then the tax from crypto gains can be filed under the capital gains section. If the sale value of the transaction is more than the cost, it will be regarded as a capital gain.
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 "ITR Alert: How to report cryptocurrency gains in income tax returns – Details here")
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