ITR filing: How to report cryptocurrency income in income tax return

Filing of Income Tax Return (ITR) is mandatory for people who earn a specific amount of income in a year. However, there is confusion among taxpayers over how earnings from investments in cryptocurrencies like bitcoin and Ethereum should be disclosed in the ITR.

On live Tv

Abhinav Soomaney, founder of Cryptotax International, emphasized the importance of understanding the nuances of reporting crypto earnings.

He advised investors to first prepare a comprehensive capital gains/losses report for their crypto activities.

“After preparing your capital gains/losses report for crypto activity, log in to the Income Tax Portal and start your ITR-2,” he suggested.

He outlined the steps to declare crypto profits within the ITR: "Report capital gains on Schedule VDA, along with other income from cryptocurrencies. Investors must then complete the necessary schedules, proceed with verification and filing." .

Soomaney clarified that capital gains tax applies only when cryptocurrencies are sold at a profit.

Holding tokens without selling them results in an unrealized capital gain/loss, which is not subject to tax.

He highlighted several key points that taxpayers should consider:

  • No deductions are allowed for cryptocurrency investors except deductions for acquisition costs.
  • The loss of digital assets cannot be offset by other income.
  • Capital gains on crypto income are taxed at a flat rate of 30%, with 1% TDS paid on each transaction (except cryptocurrencies purchased with INR and cryptocurrencies transferred between exchanges/wallets owned by the same individual).
  • Soomaney further highlighted various calculation methods available to investors such as FIFO (First In First Out), LIFO (Last In First Out) and HIFO (Highest In First Out). He suggested that HIFO could be the most beneficial in minimizing taxable profits.

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