Key Takeaways
- Income earned from cryptocurrency trading is subject to Section 115BBH of India’s Income Tax Act.
- If you have sold your cryptocurrency assets for a profit, you are liable to pay income tax (just like for selling shares for profit).
There is no escape from income tax in India. Crypto taxes are explicitly mentioned in our Income Tax Act (ITA)which was recently introduced in the finance Budget 2022. Crypto traders, therefore, need to pay and file their taxes with the authorities.
Who is liable for cryptocurrency taxation in India? You need to pay and file taxes when:
- You have sold your cryptocurrency tokens for a profit.
- You have received cryptocurrencies in the form of a business payment – which is taxed as business income.
If you fulfill any of the above criteria, here are 3 reasons why you must file your crypto taxes every year:
- To avoid paying any penalty
As mentioned before, you are liable to pay income taxes on cryptocurrency if you fulfill the above criteria. Under Section 234A, there is a penalty of ?5,000 for not filing your income tax return (ITR). This rule is now applicable to all taxpayers, including eligible crypto investors.
On the plus side, the penalty is only ?1,000 if the total annual income of the individual is below ?5 lakhs. In extreme cases, the tax evader could be charged a heavy penalty of 50% of the payable tax amount (or even a jail term of up to three years).
Under the same section, individuals who have delayed filing their tax returns need to pay simple interest (of 1% monthly) for the period between the final ITR due date and the date of filing the returns.
- To avoid any tax audits
The Income Tax (IT) department can also use an independent authority to carry out audits of all your cryptocurrency-related transactions. To avoid any tax audits, you must file your returns on time – as well as file accurate tax returns. Non-filing of taxes can provide the IT department with unlimited time to audit your taxes.
- To avoid any penal provision under the Indian laws.
- To comply with KYC regulations in India, most cryptocurrency exchanges must share their trading-related details with the IT department. Thus, all crypto transactions in exchanges are tracked by the IT department. Traders (or registered users) who do not disclose their crypto investments during ITR can face penal provisions under the Income Tax Act at a later point of time.
What happens when you do not report any income from crypto trading?
To avoid any negative repercussions, individuals should file their income tax (including their crypto trading details). However, to save on tax, few investors do not declare any income (or profit) earned from the cryptocurrency trade. In this case, the IT department can levy a penalty of 50% on the payable tax when:
- The earned income (as assessed by the IT department) exceeds the income declared by the individual.
- The earned income exceeds the basic exemption limit set under the Income Tax Act.
In some instances, the IT authorities can levy a penalty of 200% of the tax payable when the individual deliberately misreports their earned income.
Still worried about how to save tax on cryptocurrency trading in India? Binocs can help in the quick filing of your crypto taxes in tune with the latest Indian tax regulations on cryptocurrencies.
Frequently Asked Questions
1. Is income earned from cryptocurrency trading taxable in India?
Yes, all incomes (unless exempted by the Income Tax Act) are taxable in India. This includes investors earning profits from the trading of cryptocurrency assets.
2. How are crypto taxes calculated in India?
Income from cryptocurrency transfers is taxed at 30%, plus applicable surcharge and cess.
3. What is the penalty for non-filing of tax returns?
A penalty of ?5,000 for not filing your income tax return (ITR). Delayed filing of tax returns attracts simple interest (of 1% monthly) for the period between the final ITR due date and the date of filing the returns.
4. What is the penalty for non-payment of income tax?
The IT department can levy a penalty of 50% on the payable tax when:
- The earned income (as assessed by the IT department) exceeds the income declared by the individual.
- The earned income exceeds the basic exemption limit set under the Income Tax Act.
In some instances, the IT authorities can levy a penalty of 200% of the tax payable tax when the individual deliberately misreports their earned income.
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