Top Queries Around ITR Filing for Crypto Gains 2023-24

Crypto tax season is upon us, and we are feeling the pressure for the same! But worry not; CoinDCX, as always, has kept its promise and has worked out a partnership that is going to be your helping hand for filling the crypto taxes in 2023! To simplify it further, we had also compiled all your queries and answered them with one of KoinX’s CA in our recent AMA. To know further on crypto taxes, keep reading.

But first, let’s see the summed-up crypto tax scenario in India.

The crypto assets, referred to as the Virtual Digital Assets, has been out under a 30% tax bracket following the Union Budget 2022, after the Hon’ble Finance Minister, Mrs. Nirmala Sitharaman, had announced revolutionary changes to the virtual asset class. Other than that, a 1% TDS has been levied to all crypto transactions.

According to the 115BBH section of the Finance Bill, a taxable event is defined as:

1. Conversion of any digital assets to INR or any other fiat currency.
2. Conversion of one virtual digital asset type to another may include crypto-to-crypto trading or trading in stablecoins.
3. Paying for goods and services using a virtual digital asset.

Read More: Crypto Tax Guide in India [2023]

Top Queries on Crypto Tax Filling 

What is the tax rule on crypto?

As Futures trade does not fall under the TDS bracket, it oftentimes becomes very confusing for traders. As Sonu Jain of KoinX mentioned, when it comes to Future, as the transactions in Futures are settled in crypto assets, there is a transfer of digital assets, which will trigger the VDA taxation. Thus, there is no setting off losses in Futures during ITR, as the contract falls under the VDA, thus, there will be a tax of 30% on the trades.

If I withdraw crypto to an external wallet, will we have to pay taxes?

When a question of withdrawing is coming to play, two things arise – if the withdrawing is happening within one’s own wallet in multiple exchanges or between two different individuals. If the withdrawal of crypto is taking place from A’s Indian wallet to A’s foreign wallet, there will be no taxes levied on them. However, if A is transferring the assets to B, this is going to fall under the tax bracket as the action is incurring the ‘transfer of assets‘.

If we sell the crypto in USDT first and then in INR, will we have to pay taxes twice?

To simply put, the total profit you make on both transactions is the amount you pay the tax on. Technically there is no double taxation happening. You pay the tax on the profit made in both transactions.  Take an example:

A bought BTC worth INR 100.

A sold BTC at INR 200 and Bought USDT for INR 200

Therefore, A has a profit of INR 100 on selling BTC, which is taxable. 

Now A sells USDT at INR 210, where they have made a profit of INR 10.

Now the INR 100 and INR 10 are the taxable amount for A.

Do we have to pay taxes on the Earn crypto returns?

Yes, the value return received via Earn will be taxable. However, an important point to remember on this is that the profit earned will fall under the income tax slab and not the VDA slab.

Quick tip on remembering which income falls under VDA and which one under the income slab – by KoinX 

The first thing to quickly scan is if someone is selling anything or exchanging any asset. If this is a yes, it will fall under the VDA taxation bracket, and you have to pay the 30% tax on profits. If the trade or profit does not satisfy these two criteria, then it will fall under the income slab rate.

If a minor has made a profit, what is the procedure to file the taxes for that?

If the minor has created an account of their own and is trading via that, they will have to file the ITR and declare all of their income. However, if the account has been opened by their parent’s in the name of the minor, and they have deposited 1 BTC into the minor’s Earn account. The earning from that will then be clubbed into the parent’s ITR.

For Futures, the base token used is USDT. Does that mean we must disclose the cost of USDT’s acquisition for ITR?

The whole process of ITR filing for crypto includes a segment for disclosure called Scheduled VDA. Now in this particular segment the department asks 5 things, which are essential. They are:

• the buy date of the token
• the sell date of the token
• the buy value
• the sell value and
• the profit or loss

note: if it is a loss, you only have to mention 0, not the amount.

As per KoinX’s Sonu Jain, as per the FIFO method, the first asset to be bought is the first to go out. For example, if A buys BTC on July 1,  July 15 and July 28; when A sells the BTC, the by date that would be required is July 1.

To simplify this whole process for you, KoinX has come up with a solution where once the user uploads the report, the whole scheduled VDA information is drawn for them.

Is the income from Crypto Futures trading recognized as a business or capital gains income?

As the world has yet to figure out how to segment crypto assets, users can claim them as capital gains.

Read On: Tips to Save Tax on Crypto Gains

If we do not generate any profit in this financial year, do we still have to fill ITR?

Given that there have not been any trades from the individual and there has not been any profit, they do not need to file the ITR. However, if any user has traded in the said financial year and has not made any profit at all, there is a possibility of TDS being cut for the same. Now to get the refunds for the same, they will have to file the ITR.

How are airdrops taxed?

As per the law, if the total amount of airdrop amount and the assets received exceed INR 50,000, there is going to be an income tax levied on the total amount. However, there is no tax if the total amount stays within INR 50,000.

Know in Detail: Crypto Airdrop Tax in India

Does the referral income require an ITR filing?

As the term includes, referral income is also an income, and the earnings from the same will fall under the income tax slab, not the VDA one. Nonetheless, these are taxable and are required to be filed during ITR.

How can you claim your TDS returns?

The basic step in claiming your TDS returns is to file your ITR. But an important point to note is that the taxes that will be levied on these VDAs will take the TDS already paid into consideration, and the remaining amount will be the only amount that is to be paid by the traders. For example, A has made a profit of INR 1000, and the tax they have to pay is INR 300. Now since A has already paid a TDS of INR 200, they will only need to pay INR 100 for the tax on INR 1000.

Read more: How Do You Report Crypto Taxes in India? | 8 Easy Steps