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Which ITR form should be filed by Crypto Trader in India - 2021

Many people are confused as to Which ITR form should be filed by Crypto Trader in India 2021. If you are trading Bitcoin, Dogecoin, ETH or Matic then you are liable to pay Income Tax & Income Tax Return Filing rules to apply on your income. In today's article we will focus on various aspects on selecting the right ITR form.

As you would know from my previous articles - The income tax department has not yet provided any clarification regarding the tax implications on the gains earned from the crypto transactions. Even though cryptocurrency is not yet legalised by the Reserve bank of India (RBI), it is highly advisable to pay income tax on your gains from Cryptocurrency Trading.

All incomes, except which are specifically exempted by the Income Tax Act, are subject to tax. Hence the Crypto Traders / Crypto Investors will be liable to pay income tax on their crypto-transactions basis on the nature of the transactions, even though the income tax department has not yet clarified the tax impact on these transactions.

What is ITR?

Income Tax Return (ITR) is a form in which the taxpayers file information about his income earned and tax applicable to the income tax department. 

The department has notified 7 various forms i.e. ITR 1, ITR 2, ITR 3, ITR 4, ITR 5, ITR 6 & ITR 7 till date. Every taxpayer should file his ITR on or before the specified due date. The applicability of ITR forms varies depending on the sources of income of the taxpayer, the amount of the income earned and the category the taxpayer like individuals, HUF, company, etc.

Which ITR form should be filed by Crypto Trader in India - 2021

Crypto transactions would become taxable as business income or as capital gains, depending on the nature of these transactions and the investor’s intention.

Profits from the crypto transactions will be taxed as ‘business income’ if the trades are frequent in nature and the volumes are high, else taxed as ‘capital gains’ if the purpose of owning them is primarily to benefit from longer-term holding via an appreciation in value and there are fewer trades or these are held as investments. This has to be reviewed for every taxpayer and taxpayers must take the help of a CA who specializes in this area.

If reported as Business Income

According to the Income Tax Act, business income is taxed as per the income tax slab rates, and if held as ‘investments’, taxation will be similar to the capital gains.

So, if crypto transactions are reported as business income, then you need to use ITR 3 Form or ITR 4 Form

If crypto transactions are reported as business income, the implication of GST law also needs to be examined.

If reported as Capital Gains

And if crypto transactions are reported as capital gains then you need to use ITR 2 Form

If interested, we offer Crypto Tax Advisory services wherein we can guide you right way to file income tax return for your crypto transactions. First step would be schedule a consultation with a CA. All consultations with the CA are Paid consultations.

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