If you have made investment in cryptocurrencies in the financial year 2022-23, then you must pay taxes for the gains realised during the year.
Since this is the first year for which investors will pay taxes on their crypto investments, it is vital to understand the litany of provisions and a few nuances.
Although computing tax on cryptocurrency transactions is somewhat complex, it is made simpler by trading exchanges which provide transaction statement information that can be used to simplify the tax calculation process.
For instance, on CoinSwitch app — users can download their detailed profit and loss report for the trades done during the financial year.
Besides, experts argue that computing tax is easy when the number of transactions is quite small.
“The method for calculating cryptocurrency taxes may vary based on the volume of transactions. It is conceivable for individuals with a small number of transactions to calculate their own taxes,” says Gaurav Mehta, Founder, Catax.
“In such situations, you can use the transaction statement provided by the trading exchange to determine pertinent information, such as the acquisition cost, cost of disposal, TDS, and 30 percent tax rate on profits,” he adds.
However, in case you happen to trade on international exchange, NFT, DeFi and manage self-custody, then it is advisable to seek assistance from a crypto taxation expert.
Transactions galore
Those individuals who carry out a large number of transactions, manual calculations can become time-consuming and prone to errors. In such situations, one should seek assistance from technology solutions for tax calculations.
“These tools can automate the process by integrating with your trading exchange and analysing the transaction data to generate accurate tax reports. Utilising such technology can streamline the calculation process and ensure compliance with tax regulations,” adds Mr Mehta from Catax.
Provisions of tax on crypto gains
Those who are unfamiliar with crypto taxation should apprise themselves of the fact that gains are required to be reported under Schedule VDA in the ITR for FY 2022-2023.
“A flat tax of 30 percent is applicable on gains earned from the sale of crypto assets. Additionally, one percent of tax deducted at source (TDS) is applicable on the sale of crypto assets, effective from July 1, 2022,” says Vimal Sagar Tiwari, Co-founder and COO of CoinSwitch.
The profits on crypto gains are taxed under section 115BBH and gains. Besides, no deduction or offset of losses is allowed.
“The introduction of Section 115BBH in the Income Tax Act in India signifies that profits from transferring crypto assets on or after April 1, 2022, will be subject to a flat tax rate of 30 percent. This tax rate applies to all types of crypto income, whether capital gains or business income, and it doesn't matter how long you’ve held the assets,” says Punit Agarwal, Founder, KoinX a crypto Taxation Platform.
For example, if an investor buys a bitcoin for ₹10 lakh and sells it for ₹25 lakh, the profit will be ₹15 lakh, and tax on the profit will be ₹4.5 lakh (30 percent of the profit amount).
It is vital to note that taxes on crypto assets are applicable only on realised gains.
“Taxpayers should also submit the details of the TDS deductions at the time of filing returns to claim the refund of the excess tax paid or the TDS deducted during the financial year. The nature of income earned decides the Income Tax Form a taxpayer has to fill out,” adds Tiwari.
To sum up, users can download the transaction statement on the trading platform they use. They are then supposed to report the income under schedule VDA in the ITR for FY 2022-23.
It is easy to self-compute when the number of transactions is small, but when the volume is large, it is advisable to seek assistance from technology solutions for calculations.
