Cashing in on the bitcoin rally? Don’t forget your advance tax and reporting obligations

In 2022, the Indian government introduced a flat 30% income tax on gains from cryptocurrencies and Non-Fungible Tokens (NFTs). Investors riding the current rally should be aware of their advance tax and reporting obligations to avoid penalties under the Income Tax (IT) Act. With a 1% TDS deducted on sales of these virtual digital assets (VDAs), transactions appear on Form 26AS, making unreported crypto income a potential tax pitfall.

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Mint brings a streamlined guide to crypto taxation, covering everything from exchange-specific rules to ITR reporting requirements.

Is there a difference in taxation if crypto is bought and sold on an Indian exchange versus an international exchange?

The tax rate and reporting requirements for cryptocurrencies are identical whether transactions occur on Indian or international exchanges. “This tax applies uniformly to gains from both types of exchanges, with no deductions permitted beyond the cost of acquisition," says Neeraj Agarwala, partner, Nangia & Co LLP.

However, transactions on international exchanges may require additional disclosures under the Foreign Exchange Management Act (FEMA) and must be reported as foreign assets in your tax filings if applicable. Additionally, the 1% TDS deducted on Indian exchanges may not apply to transactions on international platforms.

Is wallet to wallet transfer also taxed?

No, wallet-to-wallet transfers are not taxable. Tax liability on cryptocurrencies arises only upon sale or transfer to another owner, said Agarwala. “Moreover, wallet-to-wallet transfers will not alter your cost of acquisition or holding period for the asset," he said.

My annual income, including crypto gains, is below ₹2.5 lakh. Does this mean I don’t have to pay the 30% tax?

No, the ₹2.5 lakh exemption rule does not apply to cryptocurrency income, said Karan Batra, founder of charteredclub. “You pay a flat 30% tax even if the total income is below the threshold limit of ₹2.5 lakh."

Should I pay tax while filing ITR or as advance tax?

Gains from virtual digital assets (VDAs) must be included when calculating advance tax liability, as they are reported in the capital gains (CG) schedule of ITR forms, requiring a quarterly income breakdown.

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Failing to pay advance tax on crypto income incurs a monthly interest of 1% on the due tax under sections 234C and 234B.

Do gifting taxation rules among family members apply to crypto?

Yes, cryptocurrency gifts are treated like other gifts under the Income Tax Act.

“Gifts of cryptocurrency to only specified relatives (such as parents, siblings, or spouse) would be exempt from tax. Any gift of Crypto to any other relative would be taxable in the hands of the recipient," explains Agarwala.

To avoid complications during tax assessments, it’s recommended to document significant gifts with a formal gift deed. “Clear records also help establish the relationship and intent of the gift," he adds.

How should I report the crypto transactions in ITR?

ITR forms include a specific section, Schedule VDA, for reporting crypto gains, requiring each transaction to be reported individually on a scrip-wise basis. Chartered Accountants caution that this process is highly complex.

“Getting a proper report is the biggest challenge. All the scripwise data has to be entered manually, but getting even this data is challenging," said Prakash Hegde, a Bengaluru-based chartered accountant.

Karan Batra agrees, explaining that “Capital gains statements for cryptocurrencies are not auto-generated, so each transaction has to be recorded manually." He added that the process is time-consuming and advises taxpayers not to wait until the last filing date to avoid errors.

Without a capital gains or P&L statement, taxpayers must gather the details from their buy and sell orders on exchange accounts.

Can crypto income be reported as business income?

Yes, cryptocurrency income can be reported as business income if you are actively trading, dealing, or regularly engaging in crypto transactions as part of your business or profession. “This classification is especially suitable for those involved in high-volume trading," Agarwala said.

In such cases, audit provisions will also apply.

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“If your total turnover from crypto transactions exceeds ₹1 crore in a financial year, audit provisions under Section 44AB of the Income Tax Act will apply. If more than 95% of a business's transactions are conducted through banking channels, the turnover limit for audit requirements is extended to ₹10 crore," he said.