Understanding Bitcoin Taxation and ITR Filing in India
Bitcoin Price Surge and Tax Implications
Bitcoin has recently experienced a significant surge, reaching an all-time high of $123,055 before settling at around $117,000. Since July 11, 2024, its value has increased by 90%, resulting in substantial profits for investors. However, investing in cryptocurrency in India is considered risky due to the lack of regulatory oversight.
If you make profits from Bitcoin, the government imposes a hefty tax of 30%, and you are required to report these earnings in your income tax return (ITR). The government has made changes to the ITR forms to accommodate this, and failing to comply could lead to penalties. Let's delve deeper into this topic.
How Bitcoin Taxation Works
In India, Bitcoin is classified as a Virtual Digital Asset (VDA), and earnings from it are taxed under Section 115BBH of the Income Tax Act. According to the regulations, a flat tax rate of 30% applies to income generated from the sale or transfer of Bitcoin, with no deductions or exemptions allowed.
For instance, if you purchased Bitcoin for ₹1,000,000 and sold it a year later for ₹1,900,000 after a 90% return, your total profit would be ₹900,000. Consequently, you would owe ₹270,000 in taxes at the 30% rate on this profit. It's important to note that losses incurred from Bitcoin cannot be offset against other income, nor can they be carried forward to future financial years.
Reporting in ITR
Starting from the assessment year 2022-23, a new section called Schedule – Virtual Digital Assets (VDA) has been added to the income tax return forms. If you have earned income from Bitcoin, it is essential to fill out this section. You will need to provide details such as the dates of purchase and sale, the purchase price, and the amount received from the sale.
Additionally, you must report the tax paid at the 30% rate without any deductions. If you have held Bitcoin through a foreign wallet or exchange, you must also disclose this information in Schedule FA (Foreign Assets) to ensure that the income tax department has a complete record of your foreign assets.