Do you have to report cryptocurrency investments while filing ITR?

While there has been no clarity about the legality of cryptocurrencies in India, users wonder whether they need to pay taxes on profits earned from cryptocurrencies this financial year. Moreover, is it required to report cryptocurrency holding as an asset in ITR?  

Experts say income derived from the sale of cryptocurrencies can be classified either as capital gains or business income depending on whether the portfolio is maintained for the purpose of investment or trading.  

“The government has not given any special instructions regarding taxation of Bitcoins or cryptocurrency related gains/profits. Therefore, general rules from Income Tax Act regarding sell-purchase of any asset like gold would be applicable,” said Sujit Bangar, Founder of TaxBuddy.com.

When one sells cryptocurrency held as investment, the gains are to be reported as ‘income from capital gains’. “If one held cryptocurrency for lesser than 36 months, then the gains/loss will be short term and in case it is held for more than 36 months, then the gains/losses shall be long-term,” says Bangar.  

The short-term capital gains are taxable as per the slab rates of a taxpayer while long-term capital gains are taxed at 20 per cent with the benefit of indexation.

 “Even capital gain deduction under section 54F can be availed against LTCG from cryptocurrency gains if consideration is reinvested in residential property,” said Bangar.  

If nature of transaction of sell, purchase of Bitcoins is of trading, then income from this sell, can be treated as business income and can be taxed accordingly. If there is loss, this can be carried forward just like normal business loss.  

Do you need to declare crypto holdings?

A taxpayer has to fill Schedule-AL containing details of Assets & Liabilities if taxpayer having income over 50 lakhs in a year.

Bangar argues, “The reporting of cryptocurrency holding as an asset in ITR is required if the taxpayer is holding cryptocurrency and their taxable income is exceeding Rs 50 lakh. While buying cryptocurrencies, we need to ensure fund utilised are from regular sources which are reported in income tax returns. If you are availing funds from your friends or family as loan, please ensure donor is regular filer of income tax returns and amount being transferred is from reposted sources of income.”

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