Avoid These Common Mistakes When Filing Crypto Taxes in India 

Income generated from the transfer of Virtual Digital Assets (VDAs) will be subjected to a flat tax rate of 30%. This tax applies to various assets such as cryptocurrencies, tokens, or codes obtained through cryptographic methods. It's important to note that NO DEDUCTIONS, except for the acquisition cost, are permitted. Therefore, you cannot reduce your taxable income by claiming expenses or allowances. Furthermore, any losses incurred from VDA transfers CANNOT BE OFFSET against other income or carried forward to future years. If you receive VDAs as a gift, you are personally responsible for fulfilling the tax obligations.

Under the Finance Bill 2022, a new provision called section 194S has been introduced, mandating a 1% (one percent) Tax Deducted at Source (TDS) on payments associated with VDA transfers. However, in the case of VDA transfers conducted on crypto exchanges, the responsibility of deducting tax lies with the exchange itself, as buyers may lack information about the sellers. This can pose challenges, particularly in swap transactions involving different types of VDAs.

Do you need help with Crypto ITR Filing? Trust us to assist you in filing your ITR. Our team at CA Mitesh & Associates is well-versed with Crypto ITR Filing. We offer tax saving suggestions for free to our clients while filing your ITR.

Avoid These Common Mistakes When Filing Crypto Taxes in India

Referred to as a 'notice for income escaping assessment,' this notice is issued when an Income Tax Officer (ITO) has grounds to believe that a taxpayer has not accurately disclosed their income and consequently, has not fulfilled their complete tax obligations.

The process involves two steps. Prior to issuing a notice under section 148, the ITO will first reach out to the taxpayer with a 148A notice. This initial communication grants the taxpayer an opportunity to provide explanations or arguments as to why a section 148 notice should not be issued.

If the ITO suspects that you have not reported crypto income or any other income, they have a timeframe of up to 3 years from the conclusion of the relevant assessment year to issue a 148 notice. However, if the amount escaping assessment exceeds Rs50 lakhs, the ITO has a period of up to 10 years from the end of the relevant assessment year to issue such notice.

Once a notice is issued, the ITO will proceed to reassess your income under section 147 of the Income Tax Act.

Ignoring Tax Consequences of Crypto Trading

Ensuring proper valuation of your cryptocurrency investments holds significant importance for tax purposes. In India, it is essential to value your cryptocurrencies in Indian rupees (INR) using fair market value as of the transaction date. Relying on unreliable or outdated exchange rates may result in inaccurate tax calculations. It is important to note that the Government of India (GOI) does not allow the offsetting of losses, and taxes are to be paid based on the gross profit earned. Therefore, maintaining accurate and up-to-date valuation of your cryptocurrency holdings is crucial to ensure proper tax compliance.

Complete Disclosure of Cryptocurrencies in Schedule VDAs

When it comes to Virtual Digital Assets (VDAs), it is crucial to provide comprehensive disclosure by filling out the designated section called "schedule VDAs" while filing your tax returns. This entails providing detailed information regarding the VDAs you possess or have received. Additionally, VDAs obtained through mining or airdrops will be subject to taxation based on individual slab rates. This means that the tax liability on these assets will be determined according to the income tax slabs applicable to your overall income.

Accurately reporting and disclosing your VDAs, as well as any income generated from mining or airdrops, is vital to ensure compliance with tax regulations and avoid potential penalties or legal complications. It's important to note that if you hold such receipts of VDAs as investments in the future, they will be considered capital assets and subject to a 30% tax on subsequent sales.

TDS Compliance

Tax Deducted at Source (TDS) is deducted from crypto transactions to ensure tax compliance for traders and investors. TDS applies to both buyers and sellers in crypto-to-crypto transactions. As per Section 194S, a TDS rate of 1% is applicable to the transfer of any Virtual Digital Assets (Cryptocurrency, NFTs). If you trade on an Indian exchange, the TDS will be deducted by the exchange and deposited with the government. However, if the buyer engages in P2P transactions or trades on foreign exchanges, it is the buyer's responsibility to deduct the TDS and duly remit it to the government on or before the 7th of the subsequent month.

Conclusion

Timely and Accurate Crypto Tax Filing: Your Key Priority

Filing taxes for crypto transactions is of utmost importance and should be carried out promptly and with precision. To avoid common errors, individuals are encouraged to seek professional assistance from CAs specializing in crypto tax computation and Income Tax Return (ITR) filing.

We offer tailored solutions for individuals and businesses operating in India's dynamic Cryptocurrencies taxation landscape.

Do you need help with Crypto ITR Filing? Trust us to assist you in filing your ITR. Our team at CA Mitesh & Associates is well-versed with Crypto ITR Filing. We offer tax saving suggestions for free to our clients while filing your ITR.

DISCLAIMER

The contents of this article are for information purposes only and do not constitute an advice or a legal opinion and are personal views of the author. It is based upon relevant law and/or facts available at that point of time and prepared with due accuracy & reliability. Readers are requested to check and refer relevant provisions of statute, latest judicial pronouncements, circulars, clarifications etc before acting on the basis of the above write up.  The possibility of other views on the subject matter cannot be ruled out. By the use of the said information, you agree that we are not responsible or liable in any manner for the authenticity, accuracy, completeness, errors or any kind of omissions in this piece of information for any action taken thereof. CA Mitesh and Associates is India's leading Cryptocurrency Taxation Firm which is committed to helping people navigate complex tax laws and banking regulations. Our main aim is to assist the individuals with applicable laws & regulations compliance and providing support at each & every level to make sure that they stay compliant and grow continuously. For any query, help or feedback you may get in touch here - Appointment with CA. Please note the all consultations with the CA are Paid consultations. Financial Year 2023.