How to Report Income from Cryptocurrency while filing Income Tax Return
From a business perspective, the Ministry of Corporate Affairs amended the Schedule III of the Companies Act, 2013. It has now become mandatory for companies to disclose their investments in cryptocurrencies from the financial year 2021-22. This includes profit or loss, deposit or loan, and the amount of holding in cryptocurrency. It is a positive signal, implying that companies can buy and sell bitcoins and show them on their balance sheet.
A cryptocurrency is a decentralized digital asset and a medium of exchange based on blockchain technology. The Indian Government has not granted any legal tender status to the cryptocurrency. Neither the Income Tax Department has come up with any clarification on the tax implications on the Income earned from the cryptocurrency transactions. However, Income Tax Department Issues Notices to Traders as well as Cryptocurrency Exchanges as they deem fit.
In the absence of any legal backing from the government we can Report Income from Cryptocurrency as:
(i) Capital Gains
(ii) Business & Profession
(iii) Other Sources
The classification will depend on the nature of transactions and the intention of the investor.
Classified as Capital Gains
Types of Capital Assets ?
Short Term Capital Assets: An asset that is held for a period of 36 months or less is a short-term capital assets.
The period of holding of 36 months have been reduced to 24 months for immovable properties such as land and building and house property form 2017-18.
Long Term Capital Assets: An asset held for more than 36 months is a long-term capital assets.
Some assets are considered short-term capital assets when these are held for 12 months or less. This rule is applicable if the date of transfer is after 10th July 2014 (irrespective of what the date of purchase is). The assets are:
Equity or preference shares in a company listed on a recognized stock exchange in India
Securities (like debentures, bonds, govt securities etc.) listed on a recognized stock exchange in India
Units of UTI, whether quoted or not
Units of equity oriented mutual fund, whether quoted or not
Zero coupon bonds, whether quoted or not
Tax on Short-Term and Long-Term Capital Gains
Tax Type
Condition
Tax applicable
LTCG
Except on sale of equity shares/ units of equity oriented fund
20%
LTCG
On sale of Equity shares/ units of equity oriented fund
10% over and above Rs. 1 lakh
STCG
When securities transaction tax is not applicable
The STCG is added to your income tax return and the taxpayer is taxed according to his income tax slab.
STCG
When securities transaction tax is applicable
15%
Classified as Business & Profession
If the sale of cryptocurrency is disclosed as Business and Profession, then the implication of GST should be examined. If your total sales exceeds prescribed ceiling limits then you will have to take GSTN. All the expenses will be allowed as deductions from the sale of cryptocurrency that would be your taxable profit. The profits will be added to the other income and taxed as per the income tax slab rates.
Classified as Other Sources
It can also be reported as income from other sources while filling ITR and Taxed accordingly. Income from other sources is added to the total income and taxed as per applicable tax slab of the taxpayers.
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