Taxpayers Alert: Report Crypto Transactions with ITR-2 for Capital Gains, ITR-3 for Business Income


The budget presented in 2022 had a significant impact on the cryptocurrency boom in India. In order to tax income or gains from such transactions, a 30 percent rate was set in law. Moreover, cryptocurrency exchanges were required to withhold a 1 percent TDS on all transactions.

This created a number of compliance issues for taxpayers. If you have engaged in crypto transactions, you must declare the income or gains from these transactions in your income tax return for the 2022-2023 tax year. Additionally, you must provide a detailed breakdown of your trades in a VDA schedule.

The global crypto exchanges have experienced a drop in trading volumes since mid-2022, but in India the decline was more pronounced due to the TDS that was introduced in July 2022. According to Vimal Sagar Tiwari, Co-founder and Chief Operating Officer of CoinSwitch, there was a 90 percent reduction in trading volumes. To cope with the situation, most users shifted their investments to stablecoins and adopted a wait-and-see attitude.

The new regulations, however, also have a positive side. Shivam Thakral, CEO of BuyUcoin, a digital assets exchange, believes that the clearer taxation guidelines have attracted institutional investors to the crypto market.

If you are a salaried worker with a salary less than Rs. 50 lakh, you must use ITR-2 for tax returns. You can choose to treat cryptocurrency gains as capital gains. If you decide to treat them as income, then ITR-3 is the form you must use. Capital gains are calculated as the difference between the sale price and the cost of acquisition, and taxed at 30 percent. You cannot offset mutual fund, VDA, or other losses against gains from crypto transactions. However, you can claim any TDS that was withheld.

It is more complicated if crypto earnings are treated as business income. In this case, both you and the person paying you must comply with GST norms. You must determine the value of the asset, taking into account the services you have provided. According to Indy Sarker, Co-founder of TaxCryp, a crypto-tax compliance firm, professionals who receive crypto as payment must pay tax based on its current market value. Punit Agarwal, founder of the crypto taxation platform KoinX, adds that the tax rate will depend on the type of business.

To make filing returns easier, various crypto exchanges are providing transaction histories, account statements, tax calculators, and tax reports. Airdrops and NFTs are subject to a 30 percent tax on the selling price. If you have made gains or losses on the sale of an NFT, you must report it and file taxes accordingly. According to Avinash Polepally, Senior Director and CryptoTax Business Head at Cleartax, losses cannot be offset against gains.

Filing taxes is essential to receive a refund if you have made losses. Experts note that the tax rules regarding crypto receipts are not clear and advise getting tax advice.

Overall, the budget presented in 2022 had a great impact on the cryptocurrency market in India. It created more compliance issues for taxpayers, but also opened the door for institutional investors. To ensure compliance, various exchanges are providing tools to make filing returns easier.

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