The New Financial Year is here and crypto is again making it to the headlines, and this time it is because of the 30% tax rate.
There was quite some ambiguity regarding crypto tax. The Budget 2022 brings clarity on the taxation of Virtual Digital Assets (VDA) such as Crypto, NFT, etc.
From 1st April 2022, the tax treatment of crypto, NFTs and other virtual digital assets will be:
- Income tax at 30% rate
- Losses cannot be set off against other incomes
- Losses cannot be carried forward
- Losses from other incomes cannot be set off against income from crypto & other VDAs
- Receiver of the Crypto, NFT, etc as Gift is taxed
- Cannot claim expenses & allowances in case of Transfer of crypto, NFTs, etc.
- TDS will be deducted at 1% on payment if the transfer amount exceeds INR 50,000 for individuals
The Budget 2022 announcement sparked a conversation around the legality of cryptocurrency in India. However, Financial Minister Nirmala Sitharaman later clarified that – ‘just because income from cryptocurrency is taxable, doesn’t mean cryptocurrency is legal in India’. Ouch!
According to a report by Economic Times, the volume of trade on popular cryptocurrency platforms soared on 31st March 2022 (Last day of F.Y 2021-22) and since then the volume witnessed a steep decline up to 70%.
It is not difficult to connect the dots here. The new Tax rules on crypto come into effect from 1st April 2022, and investors & traders squared off their positions before the start of the new financial year so that the 30% tax liability doesn’t apply to them.
But, does that mean that tax does not apply to that income? That income should be reported when filing the ITR and will be taxed.
That’s not all, the Income Tax Department has been sending notices to taxpayers who traded crypto and haven’t reported them while filing their ITR.
Notices for Not Reporting Crypto Trading
Wondering how ITD knows about our crypto trades?
Well, Signing up on a crypto exchange platform requires us to complete our KYC process. This means all our transactions on that platform are accessible to the ITD either through PAN. Aadhaar or linking bank account.
Now, if you traded crypto but did not report in your ITR, the ITD can send you a notice dated back up to 8 years. The objective of the notice would be to get an explanation regarding the same.
Although there is an ambiguity around – under which income head should crypto trading be taxed, the notice seems to consider it under the head ‘Capital Gains’. However, it is not explicitly stated under the Income Tax Act. One school of thought suggests it should be under ‘Income from other sources’, since it is taxed similar to activities such as lottery, gambling, etc.
How to Respond to Crypto notices?
Now, if you have received such a notice, you must respond to that notice within the stipulated time.
You need to provide a valid reason for not reporting your crypto trades and back your claims with relevant documents if necessary. You can respond by
Logging into your Income Tax Profile – Pending Actions- E-proceedings
Or you can also submit your response via email as will be mentioned in the notice.
Depending on the case, the Assessing Officer can ask you to perform certain actions, which may include filing a revised return, paying tax, interest and penalty.
Clarification for Not Reporting Equity and F&O Trading
Unlike crypto platforms, KYC has always been mandatory for participating in capital markets for equity, mutual funds, debt, derivatives trading, etc.
In July 2020, the CBDT had partnered with SEBI to curb tax evasion through exchange of information and data such as PAN details, ITR information, and trading transactions with SEBI.
ITD is now sending out communications through SMS/Emails to taxpayers where they suspect capital market participation or any other high-value transactions, but it’s not reflected in the Income Tax Return.
How to Respond to SMS from ITD?
If you receive such a communication from the ITD, you need to share an appropriate response.
Login to the Income Tax Portal and Navigate to ‘Pending Actions’ > Compliance Portal > Select the relevant e-campaign.
After that, you will be required to provide Feedback In AIS.
The transactions for which the feedback is required would be marked as ‘Expected’
Based on your response, select the most appropriate option.
We understand communications from the ITD can be intimidating. Whether it is for not reporting your trades, or for variances between the ITR you have filed and the calculation made by the ITD.
And we are here to help you with exactly that. Not sure how to respond?
Mail us a screenshot or a PDF of your notice/communication at firstname.lastname@example.org
And we’ll help you respond to it.
What is the time limit in which I need to respond to the notice under section 139(9)?
How can I respond to the notice received online?
How much time it will take to process the refund once response to notice u/s 139(9) is filed?
It is very common to receive a notice from the Income Tax Department. The notice sent to you might be a routine inquiry or a request for clarification. There is no need to worry when you get a notice from the Income Tax Department. You will have 15 days time in which you will need to respond to the notice/file revised ITR.
Hope this helps!
You can login to your account on the Income Tax e-filing website by entering your credentials i.e. User ID (PAN), password, and captcha code.
Next, you need to click on the ‘e-file’ tab and select ‘Response to outstanding Tax Demand’ option.
Hope this helps!
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