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With Bitcoin's price continuing its rally and hitting new milestones, Indian investors riding this wave need to keep an eye on their tax commitments as well. The country has put stiff guidelines on the taxation of virtual digital assets (VDAs) such as Bitcoin, making it essential for taxpayers to know how best to navigate reporting their crypto transactions in the Income Tax Return (ITR).
India's Tax Approach to Bitcoin
In India, a flat 30% tax is applicable on profits from sale or transfer of Virtual Digital Assets (VDAs), which includes cryptocurrencies such as Bitcoin. Buying and selling the asset does not qualify for a spanning set of exemptions and therefore neither does the holding period allow for any advantages. This tax rate is static for all cryptocurrency holders irrespective of income tax slab. Additionally, there is a levy of 1% TDS on VDA transaction settlements surpassing a compliance determined ceiling, which is meant for ease of governance.
An important feature of the taxation system which is meant only for Bitcoin is that there is no loss offsetting parameter. Losses experienced while selling or trading one crypto asset cannot reduce tax liability from other crypto asset trades and cannot be offset against other income. In addition, the inability to use these losses for future financial years further complicates the taxation burden on users as it does not allow loss utilization.
Reporting Bitcoin in Your Income Tax Return (ITR):
Filing your Income Tax Return (ITR) requires reporting Bitcoin transactions. This is quite important because failure to do so may invoke penalties and scrutiny during audits from the tax department.
Here’s a guide on how to report:
With Bitcoin appreciating, it is important to adhere to compliance requirements under Indian law so that you maximize legal returns. You may want to consult a tax professional for more detailed advice about targeted compliance matters.
