Sold Or Swapped Crypto? Here’s How To Report VDA Income In Your ITR

Crypto may be digital, but transactions involving it can leave a clear tax trail. Anyone who has sold, exchanged or otherwise transferred cryptocurrencies, crypto tokens or non-fungible tokens (NFTs) during the year needs to take these transactions into account while filing the income-tax return (ITR).

For tax purposes, these are treated as virtual digital assets (VDAs). Income arising from their transfer is taxed at a flat 30 per cent, apart from applicable surcharge and cess. The rules are also stricter than those applying to several conventional investments, particularly when it comes to claiming expenses and adjusting losses.

How Crypto Gains Are Taxed

While working out income from the transfer of a VDA, taxpayers can deduct the cost of acquiring the asset. Other expenses cannot generally be claimed against such income.

Losses get a restrictive treatment, too. A loss on the transfer of one VDA cannot be adjusted against a profit made on another VDA or against income from another source. Such a loss also cannot be carried forward for adjustment in subsequent years either.

So, an investor who makes money on one cryptocurrency but loses money on another may still have to pay tax on the profitable transaction.

There is also a tax deducted at source (TDS) provision for certain VDA transactions. TDS at one per cent applies on consideration paid to a resident for the transfer of a VDA, subject to the prescribed limits.

However, this should not be confused with the final tax payable. The TDS is available as a credit while calculating the taxpayer’s eventual liability.

Where Should You Report Crypto Income?

Income from VDA transfers has to be reported transaction-wise in Schedule VDA of the applicable income-tax return. Taxpayers should keep records of the date of purchase, acquisition cost, date of transfer and the amount received.

Simply purchasing crypto and continuing to hold it does not, by itself, generate taxable income from a transfer. A tax liability generally arises when the asset is sold, swapped, exchanged or otherwise transferred.

Investors should also compare their records with information available in the Annual Information Statement (AIS) and Form 26AS. Differences between transactions reported by an exchange or another entity and those disclosed in the ITR could draw scrutiny from the Income Tax Department (ITD).

Crypto Transactions Are Becoming More Visible

Reporting of crypto transactions and gains is becoming more structured. Under the Crypto-Asset Reporting Framework, specified crypto asset service providers have reporting and due-diligence obligations to comply with. These requirements fall on intermediaries rather than individual investors, but they increase the visibility of crypto transactions to income tax authorities.

For taxpayers, maintaining transaction-wise records and reporting taxable VDA income correctly is important, even where the trades are relatively small.

FAQs

1. Do I need to report crypto transactions in my ITR?
Yes. Income from selling, swapping or otherwise transferring cryptocurrencies, NFTs or other VDAs must be reported in Schedule VDA of the applicable ITR.

2. How are crypto gains taxed in India?
Income from transferring VDAs is taxed at 30 per cent, apart from applicable surcharge and cess. Only the cost of acquisition can generally be deducted.

3. Can crypto losses be adjusted against other gains?
No. A loss from one VDA cannot be set off against gains from another VDA or other income, nor can it be carried forward.