Filing crypto tax for FY 2022 and 2023: Can you do it on your own or expert advice is must?

As crypto taxation is new in India, investors and traders may face some issues, especially while filing ITR for FY 2021-22 as there are a lot of confusions.

crypto tax filing 2021, 2022, 20223
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Cryptocurrency Tax Filing FY 2021-22 and FY 2022-23: Crypto traders and investors will have to report income from cryptocurrency transactions while filing Income Tax Return for FY 2021-22 this year. In Budget 2022, the Government announced flat 30% tax on income from crypto and other virtual digital assets. This rule will be applicable while filing ITR for FY 2022-23 next year. 

As crypto taxation is new in India, investors and traders may face some issues, especially while filing ITR for FY 2021-22 as there are a lot of confusions. Experts hope from next year, there will be much clarity on how to report crypto income in ITR. 

Before Budget 2022, the transaction involving cryptocurrency or NFT were always taxable as any other asset. In Budget 2022, the new category of assets has been determined as Virtual Digital Asset (VDA). These VDAs would be taxed at straight tax of 30% without any benefit of deduction apart from cost of acquisition. Further, TDS at the rate of 1% has also been proposed. 

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“When you are venturing into crypto transaction, always ensure the funds being utilised are properly disclosed in tax returns. If you are borrowing funds for trading into cryptocurrency, beware you cannot claim interest as deduction from taxable profit. As TDS has been proposed on VDA transactions, you need to ensure filing of income tax return even if you don’t have loss from VDA transaction. This will help to claim refund of tax deducted,” Sujit Bangar, Founder, Taxbuddy.com, told FE Online. 

Tax on crypto income from foreign exchanges

According to Bangar, if you have purchased cryptocurrency from exchanges based outside India, these can be considered as foreign asset and can be liable to be reported in ITR as foreign asset. If you are exchanging one cryptocurrency for another one, then also tax incidence can come. 

No set-off allowed

“Other important point to note is that losses from cryptocurrency cannot be set off against any other income and cannot even be carried forward. For example, I have entered into crypto transactions resulting in loss of 3,50,000. I have income from trading in shares to the extent of 7,50,000. Here my taxable income would be 750k and I cannot take benefit of set off of loss of 3,50,000,” Bangar explained. 

Key points to keep in mind for FY 2021-22

Abhishek Soni, Co-Founder Tax2win, said that at present, there is no clarity by the Income Tax Department as to how the gains from crypto will be taxable for ITR of FY 2021-22. Clarification from the CBDT is expected in this regard.

Key points to keep in mind for FY 2022-23

According to tax experts, few key points a taxpayer needs to keep in mind related to taxation of crypto gain/loss as per Budget 2022:

  • First of all, you should calculate all your gains made via crypto holdings, staking, farming and ICOs and specify them in your business income
  • Gain from crypto needs to be reported as special Income under the head ‘Income from other sources’. There will be a separate column in the ITR Form for this.
  • Flat 30% tax rate will be applicable on the gains made, without deducting any expenses except the cost of acquiring that currency.
  • Loss from cryptocurrency cannot be set off against any other income and also, cannot be carried forwarded. For example, if we suffer a loss of 10,000 Rupees in the previous year and we have gained 20,000 Rupees in the current year, then we have to pay 30% tax on 20,000 Rupees i.e. 6000 Rupees.
  • These newly inserted provisions will be applicable from the Assessment Year 2023-24 i.e. FY 2022-23.
  • You would be liable to pay taxes on the net profit made in the financial year. Net profit = Total Profit in the current financial year –  Total loss faced in the current financial year.
  • Don’t forget to claim the TDS( Tax Deducted at Source) which had been deducted while trading securities on the exchanges.

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How complex is it to file crypto tax in India currently

Neha Nagar, Founder and CEO of TaxationHelp.in, said that currently, people who will file crypto gains tax for the first time will face some problems. 

“For instance, they may not be able to get the TDS certificates from the exchange. Furthermore, people may find it difficult to calculate their total gains made during the year as most of the exchanges are not providing the correct statement for the same. Gains made outside these exchanges will be very hard to calculate as they will not provide a statement for the gains. For example, gains made through decentralized exchanges, lending and borrowing platforms or staking rewards may be falsely stated in the Income Tax return. Therefore, currently, it is quite complex to file crypto tax in India currently,” she added. 

The new taxations rules for virtual digital assets would be applicable for transaction done in FY 2022-23. The ITR forms have not been notified yet as ITR for FY 2022-23 would be filed in July 2023. As far as filing ITR for transactions entered in FY 2021-22 (AY2022-23), the new rules prescribed in Budget 2022 won’t be applicable.

“For the current Financial year (FY 2021-22), there is no clarity regarding the taxation of gains from the crypto.   As per one view, ITR can be filed treating the same as a capital gain like other capital assets, subject to the condition that it is not treated as business income. However, another view suggests that it needs to be shown under the head Income from other sources. Clarification is expected from the CBDT in this regard,” Soni said. 

Is expert help necessary for filing crypto tax? 

Not just the crypto taxation rules, even most of the crypto investors and traders are also new. Experts say that you may face issues while reporting your crypto income currently for taxation. Hence, professional advise may be necessary. 

“Filing of ITR on own is quite possible if all legal positioning of crypto transactions are understood. As crypto is new asset class and legal framework is still evolving, it’s always better to take expert advise, said Bangar. 

“If someone is filing their crypto tax return for the first time and they do not know how to calculate the gains, then they may need some help or expert advice. After some time when they will gain more experience in calculating their returns, they can file the crypto tax solely by themselves. One thing should also be noted that you should seek the help of an accountant who knows the different aspects

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