ITR filing for crypto investors: 3 key points to keep in mind

In a first for India, crypto investors are about to file taxes on their 2022-23 gains. The country rolled out a new crypto tax plan last year. This was a response to the rise of digital currencies. After reaping considerable gains from a thriving market, now comes the taxman's turn. Last year’s rules, formulated in response to the escalating popularity of digital currencies, are now in full swing. 

The flat tax crypto rate

The tax structure is forthright. You have made a profit from your crypto investment? 30% tax is your due. It's irrelevant whether you label it as a capital gain or business income. The rate remains the same. And, save for the actual acquisition cost, no tax deductions are permissible.

Adding to this, an exceptional clause has been integrated into the crypto tax framework. For crypto transactions exceeding Rs 50,000 within a fiscal year, an additional 1% Tax Deducted at Source (TDS) applies. This deduction applies only to crypto sales converted into Indian Rupees, not purchases with Rupees.

Choosing the right income tax return forms

Now, onto the practicalities of filing your Income Tax Returns (ITR) for these new-age gains. Two forms are the stars of the show: ITR-2 and ITR-3. ITR-2 is your go-to form if you have made capital gains from cryptocurrency, but don't possess business income. On the other hand, if business income, crypto or otherwise, is part of your financial tableau, ITR-3 is your form.

The revamped ITR forms for 2022-23 now cater to crypto and similar digital assets. You will need to be meticulous about details – the timelines of your crypto buys and sells, the resultant profits, and more. Gifted crypto? You need to declare that as well.

Keeping records key to file ITR for crypto investors

Ensuring accurate records of your crypto transactions isn't merely advised, it's essential. Any discrepancies could lead to some undesirable attention from tax officials.

A noteworthy aspect is that losses from one crypto can't neutralise gains from another. But, by adhering to certain rules, losses can indeed offset gains. If the year was unkind and you've suffered losses in your crypto ventures, you might be eligible for a TDS refund, provided you have no other taxable income.

Finally, all your crypto wallets – those linked to centralised and international exchanges, and even those linked to decentralized finance (DeFi) – need to be declared in your tax return. The aim is to maintain absolute transparency in your crypto dealings, a fundamental principle in navigating the new TDS guidelines.