IT department to rely on voluntary disclosure about acquisition cost of cryptos

The Income Tax department will rely more on voluntary disclosure on acquisition cost of virtual digital assets (VDA), better known as cryptocurrency, for the new regime of taxation set to roll out from April 1. However, in case of even the slightest doubt, the disclosures will be thoroughly re-examined, a senior tax official told BusinessLine.

“Barring ₹60,000-70,000 crore of self assessment tax, the entire direct tax collection focus on voluntary compliance and VDA will not be an exception,” the official said. He also explained that the department will rely on the price of acquisition mentioned by the investor and accordingly, income earned to be taken for the taxation.

The new taxation regime for VDA is part of the Finance Bill, 2022, which will be taken up during the ongoing session of the Parliament for passage. Post enactment, the CBDT will come out with detailed rules. The new regime has two components – taxing the income at the rate of 30 per cent from financial year 2022-23 (Assessment Year 2023-24) starting on April 1, and deduction of tax on payment for transfer of virtual digital asset at the rate of 1 per cent with effect from July 1.

What experts say

According to L Badri Narayanan, Executive Partner, Lakshmikumaran & Sridharan Attorneys, the taxpayer shall be paying taxes on income computed from transactions in cryptocurrencies on annual basis. It shall not be required to be computed based on a particular class of cryptocurrency or for each cryptocurrency individually. The taxpayer should also keep a record, either in the form of a contract note issued by the respective exchange or any other document, to support the deduction of the cost of acquisition.

“Other than the cost of acquisition, deduction of any other expenditure is not allowable as a deduction. Further, the proposed provision does not propose to allow set-off of loss from transactions in cryptocurrencies against other income of a taxpayer. But if the taxpayer has a loss from the sale of one cryptocurrency, then it can set-off such loss against profits from another cryptocurrency,” he said while admitting that more clarity is required on this.

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Neha Nagar, Founder & CEO of TaxationHelp.in, advised that taxpayers must report all crypto income whether on Indian exchanges or foreign exchanges, whether from trading, investing, or farming, staking & ICOs. All these incomes need to be reported in ITR. “We need to pay 30 per cent flat tax on our crypto income and crypto transfers without deducting any expenses except the cost of acquiring the crypto. Failing to report these, we might attract I-T notice,” she said.

TDS provision

Narayanan said under the proposed provision, duty has been cast on the purchaser of cryptocurrency to deduct tax at source. “We believe that there will be practical difficulties in complying with this provision, more particularly where the sale and purchase of cryptocurrencies will be taking place on crypto exchanges where the identities of the buyer and seller are not known to each other. However, as the provision as it stands today and unless these provisions are amended before becoming part of the I-T Act, it will create chaos amongst crypto investors with respect to its compliance,” he said.

Nagar advised the investors should claim the TDS already paid during crypto transactions. “If not already given, get the TDS certificate from the exchanges. It might be difficult to get these certificates but we should keep a record of all our crypto transactions,” she said.

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