As per the provisions of the Income Tax Act, an assessee – possessing annual revenue of more than Rs 2.5 lakh or who has received any payment on which tax was deducted at supply (TDS) – wants to file Income Tax Return (ITR), disclosing all the earnings.
However, there is confusion amongst quite a few on how the earnings from investments in cryptocurrencies really should be disclosed in the ITR as there is no clarity on it.
“In India the cryptocurrency sector is in a very nascent stage. A lot in terms of regulations and taxation needs to be done. Cryptocurrency earnings ought to be taxed as a short or long-term capital gain based on the duration they were held as an investment,” mentioned Kumar Gaurav, CEO and Founder, Cashaa.
In truth, the Reserve Bank of India (RBI) had banned holding or trading cryptocurrencies in India. The RBI ruling, having said that, was set aside final year by the Supreme Court, paving way for investments in cryptocurrencies in India.
But due to the confusion, the nature of earnings from investments in cryptocurrencies has not been defined but. So, there is no clarity on taxation of such earnings.
“Tax implication on any profit or gain arising from holding Crypto Currencies will depend on its nature whether it is a currency or property. Generally crypto currencies are used for exchange of goods or services. Currently in India, crypto currencies are not recognised by RBI as a currency and similarly income tax law also does not define it as a currency. So, crypto currencies cannot be regarded as currency neither an India currency nor foreign currency. Therefore, for the purpose of income tax it will be regarded as property and tax implication will be similar if one is holding any other property. In other words the profit or gains arising from crypto currencies either can be taxed as business profit if the same is acquired with the intention to make profit by trading/mining or capital gain if the same is acquired with the intention to create wealth,” mentioned Gopal Bohra, Partner, NA Shah Associates.
“In absence of any clarity the tax implications are discussed based on the existing tax law, however, specific clarifications are required from the tax department. In ITR form disclosure of the profit or gain arising from crypto currency transactions need to be disclosed on the basis of the position taken by the taxpayer i.e. whether capital gain or business profit,” Bohra added.
Investing in cryptocurrency? You may possibly get interest, take loan against deposits
However, it will not be correct to not disclose the earnings from crypto investments, basically mainly because there is no clarity on taxation.
“While cryptocurrencies have not been categorised under any tax bracket, so far. But the Income Tax Department can monitor earnings of cryptocurrency investors that are registered through KYC/AML compliant exchanges, with the help of PAN,” mentioned Sumit Gupta, CEO and co-founder of CoinDCX.
“The amount of earnings generated by investing in cryptocurrencies may be highlighted under ‘Income from Other Sources’,” opined Gupta.
“The fact that earnings from cryptocurrencies is being considered as a taxable income is a positive indication as it also implies Crypto is being considered as a potential asset class,” he added.
The lack of clarification about the taxation on crypto earnings, having said that, may possibly outcome into disputes.
“The taxation of crypto currency is a contentious issue and would definitely be prone to litigation. As on date, the Income Tax Act does not deal with taxation of crypto currency explicitly. In this backdrop, based on the available guidelines in determining the nature of income, the common perception is that crypto gains are speculative incomes and shall be disclosed under the income under the head profits and gains of business or profession,” mentioned Divakar Vijayasarathy, Founder & Managing Partner, DVS Advisors LLP.
“However, those who have transacted minimally and have held crypto currency for longer duration, may disclose the income under the head income from other sources, in order to avoid litigation. Disclosing the same under capital gains shall be prone to litigation since the term “property”, beneath the definition of capital asset, is not defined and thinking of the exact same as capital asset is contentious having said that we really feel that they really should be treated at par with other listed securities. The taxation of crypto currency, at present, is a blind spot with unique possibilities till the government clarified its stand unequivocally,” Vijayasarathy added.
So, it is superior to seek the advice of your tax advisor prior to you disclose your crypto earnings on return of revenue.
“Any earnings you make from crypto trading are taxable like any other income and should be declared in the IT returns. However, we advise our users to consult with the experts like Chartered Accountants on how to declare these earnings in ITR. I also believe that crypto regulation will bring more clarity to this as we’ll understand how crypto is classified, and taxed in India,” mentioned Nischal Shetty, CEO, WazirX.