There is confusion among many on how the crypto earnings from investments in cryptocurrencies, and crypto earnings should be disclosed in the ITR as there is no clarity on it. As per the provisions of the Income Tax Act, an assessee – having an annual income of more than Rs 2.5 lakh or who has received any payment on which tax was deducted at source (TDS) – needs to file Income Tax Return (ITR), disclosing all the earnings.

However, there is confusion among many on how the earnings from investments in cryptocurrencies should be disclosed in the ITR as there is no clarity on it. But due to the confusion, the nature of earnings from investments in cryptocurrencies has not been defined yet. So, there is no clarity on the taxation of such earnings.

In India, the cryptocurrency sector is in a very nascent stage. A lot in terms of regulations and taxation needs to be done. Crypto earnings ought to be taxed as a short or long-term capital gain based on the duration they were held as an investment.

In fact, the Reserve Bank of India (RBI) had banned holding or trading cryptocurrencies in India. The RBI ruling, however, was set aside last year by the Supreme Court, paving way for investments in cryptocurrencies in India.

“Tax implication on any profit or gain arising from holding and crypto earnings will depend on its nature whether it is a currency or property. Generally, cryptocurrencies are used for the exchange of goods or services. Currently, in India, cryptocurrencies are not recognized by RBI as a currency and similarly, income tax law also does not define it as a currency.

So, cryptocurrencies cannot be regarded as currency either an Indian currency or foreign currency. Therefore, for the purpose of income tax, it will be regarded as property, and tax implications will be similar if one is holding any other property.

In other words, the profit or gains arising from cryptocurrencies either can be taxed as business profit if the same is acquired with the intention to make a profit by trading/mining or a capital gain if the same is acquired with the intention to create wealth,” said Gopal Bohra, Partner, NA Shah Associates.

However, it won’t be proper to not disclose the earnings from crypto investments, simply because there is no clarity on taxation. “The number of earnings generated by investing in cryptocurrencies may be highlighted under ‘Income from Other Sources’,” opined Gupta.

“While cryptocurrencies have not been categorized under any tax bracket, so far. But the Income Tax Department can monitor crypto earnings investors that are registered through KYC/AML compliant exchanges, with the help of PAN,” said Atuly Bhatt, CMO, and co-founder of BuyUcoin.

“The fact that earnings from cryptocurrencies are being considered as a taxable income is a positive indication as it also implies Crypto is being considered as a potential asset class,” he added.

The lack of clarification about the taxation on crypto earnings, however, may result in disputes.

“The taxation of cryptocurrency is a contentious issue and would definitely be prone to litigation. As of date, the Income Tax Act does not deal with the taxation of cryptocurrency explicitly.

In this backdrop, based on the available guidelines in determining the nature of income, the common perception is that crypto gains are speculative incomes and shall be disclosed under the income under the head profits and gains of business or profession,” said Divakar Vijayasarathy, Founder & Managing Partner, DVS Advisors LLP.

Source:- financial express

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