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Next year's I-T return to have separate column for crypto income: Government

Revenue Secretary Tarun Bajaj said gains from cryptocurrencies were always taxable and what the Budget proposed is not a new tax but providing certainty over the issue.

Published: 02nd February 2022 05:09 PM  |   Last Updated: 02nd February 2022 05:09 PM   |  A+A-

Bitcoins, cryptocurrency

For representational purposes. (File Photo)

By PTI

NEW DELHI: Income tax return forms from next year will have a separate column for making disclosures on gains made from cryptocurrencies and paying taxes, Revenue Secretary Tarun Bajaj said on Wednesday.

The government will from April 1 charge a 30 per cent tax plus cess and surcharges, on such transactions in the same manner as it treats winnings from horse races or other speculative transactions.

In an interview with PTI, Bajaj said gains from cryptocurrencies were always taxable and what the Budget proposed is not a new tax but providing certainty over the issue.

"The provision in the Finance Bill is related to taxation of virtual digital assets. It is to bring certainty in taxation of cryptocurrencies. It does not convey anything on its legality which would come out once the Bill (on regulating such assets) is introduced in Parliament," he said.

The government is working on legislation to regulate cryptocurrencies, but no draft has yet been released publicly.

In the meanwhile, a central bank-backed digital currency will start circulating in the next fiscal to usher in cheaper, more efficient currency management.

The 30 per cent plus applicable cesses and surcharge of 15 per cent on income above Rs 50 lakh will have to be paid on income from cryptocurrencies, he said adding the income tax return form from next year will have a separate column to declare gains from crypto.

"Next year ITR form will show a separate column for crypto. Yes, you will have to disclose," he said.

The launch of 'Digital Rupee' by RBI as well as a 30 per cent tax from April 1 on profits from digital asset transactions, including cryptocurrencies and non-fungible tokens (NFTs) was announced by Finance Minister Nirmala Sitharaman in her budget speech on Tuesday, as the country keeps pace with the global move toward virtual financial instruments.

"The Government was very clear that it has to push for a tax on income from crypto assets. So we have brought in maximum rate and levied 30 per cent, with an applicable surcharge. We have also brought in TDS, so we will now track the transactions," Bajaj said.

The Budget 2022-23 also proposed a 1 per cent TDS on payments towards virtual currencies beyond Rs 10,000 in a year and taxation of such gifts in the hands of the recipient.

The threshold limit for TDS would be Rs 50,000 a year for specified persons, which include individuals/HUFs who are required to get their accounts audited under the I-T Act.

The provisions related to 1 per cent TDS will come into effect from July 1, 2022, while the gains will be taxed effective April 1.

Also, no deduction in respect of any expenditure or allowance shall be allowed while computing income from transactions in such assets.

It has also specified that losses from the transfer of virtual digital assets will not be allowed to be set off against any other income.

No deduction has been allowed since cryptocurrencies and virtual digital assets do not have any economic value, except the underlying technology, Bajaj said.

The crypto market in India grew 641 per cent in the year through June 2021, according to an October report by industry research firm Chainalysis.

"It was always taxable, I am not saying it's not a new tax, I'm bringing certainty in tax.

Now if you show crypto in the ITR form, you will have separate head crypto and it will charge you 30 per cent tax," he said, adding that the message behind the Budget announcement is that crypto is taxable.

Gains from crypto are chargeable to income tax even at present, Bajaj said, adding the Assessing Officer will assess the ITR based on crypto income that the assessee has shown.

"If somebody says it's a long-term capital gains tax (LTCG), he may say no it's not LTCG tax, it is a business income and hence liable to 30 per cent tax," he said.

With regard to taxability of cryptocurrency prior to April 1, 2022, Bajaj said, "For transactions before April 1 you will show in some head in your ITR and the Assessing Officer will do an assessment for you".

Giving example, he said currently trading in the derivative is not considered as investment or capital gain but is treated as business income.

"The Assessing Officer will take a call on what head crypto gains should be charged," the Secretary said.

Bajaj said the new currency that RBI will bring will also have the underlying blockchain technology.

"So, what we are also saying is that since it doesn't have economic value, we will not allow set-off of losses or carry off loses."

Bajaj said currently some people are showing crypto gains as income and paying taxes, but some people are not doing it.

With TDS provision introduced, transaction information will reach tax department automatically.

The Budget announcement of taxing 'virtual digital assets' or crypto currencies will help the Income-Tax department measure the "depth" of this trade in the country, know the investors and the nature of their investments and it does not "attach any legality" to these transactions, CBDT Chairman J B Mohapatra said.

The head of the I-T department establishment in the country said that this is "the right time" for the taxman to enter this arena, about which, Finance Minister Nirmala Sitharaman has said that the government was undertaking a stakeholders' consultation to frame a national policy and regulator in the coming days.

Stating that there has been a "phenomenal increase" in transactions in virtual digital assets, Sitharaman announced in her February 1 Budget speech that any income from transfer of any virtual digital asset shall be taxed at the rate of 30 per cent along with some other direct tax measures like application of tax deduction at source (TDS) provisions.

"The department does not sit in judgement over the legality of any transaction. The income-tax department and the income-tax Act only looks at whether the transactions that you have entered into are resulting in income. We are not into legality of any income but we are into the taxing of that income."

"That is the reason, I would say, that taxing crypto currency under the new legislation does not attach any legality. It does not," Mohapatra told PTI in a post-Budget interview.

The crypto trade or the digital assets transactions "do not ipso facto become legal or regular just because you have paid taxes on that", he said.

"The regulation policy on a national level (for crypto currency) is under work right now, the tax department is entering into the digital or virtual asset side at a time when the policy itself is being worked out so this is, I would say, the right time for the department to have entered the market," the chief of the Central Board of Direct Taxes (CBDT) said.

Mohapatra elaborated that when an entity declares any profit or surplus on the digital trade, then they also have to say where they have got the money to invest from and, if the investment is proper and justified, then the surplus will be taxed.

"The taxation will also help us know if the investment is contaminated or illicit, if he/she is putting unaccounted income or it is a 'benami' of somebody else, then the consequences will follow," he said.

So, we are not just looking at the surplus but we are also looking at the nature of the investment he/she is making, Mohapatra said while explaining the rationale behind the government's move in the Budget.

"We want to build and map the whole depth of this market through the TDS provisions. We want to look at each of the transactions, who is investing and where he/she is investing? That one per cent of the TDS will give us an idea as to the depth of this market," he said.

The Budget has proposed a 1 per cent TDS on payments towards virtual currencies beyond Rs 10,000 in a year and taxation of such gifts in the hands of the recipient.

The threshold limit for TDS would be Rs 50,000 a year for specified persons, which include individuals/HUFs who are required to get their accounts audited under the I-T Act.

Also, no deduction in respect of any expenditure or allowance shall be allowed.

"It has been said that there are 10 crore investors (in the crypto trade), so we want to see whether it is 10 crore or 1 crore. We want to see whether the profits are declared, whether they are real or just drummed up to build up the market. We want to get into the market, understand how it works and also want to remove the opacity and bring transparency to the transactions," Mohapatra said.

Asked about the current estimations of the crypto economy in the country, the CBDT chief said he would not like to hazard a guess in the absence of accurate data.

There are some project-based discoveries like in a year we ran a pilot project and we got some data, the next year we had another kind of pilot project and we got some data, he said.

"I will not be right in quoting those data in order to have a pan-India estimation about the depth of the (crypto) market," the chairman said.

Tax department officials, however, say they have "unconfirmed or anecdotal inputs" to suggest that there are about 40 crypto exchanges in the country and the annual turnover of this unregulated trade (since 2017) ranges from Rs 30,000 crore to Rs 1 lakh crore per annum.

The CBDT chairman said the taxman, currently, also does not have clarity on crypto investments and income as they face four kinds of probabilities.

The first is there is no income tax return (ITR) filed although you are trading, making profit or loss; second is there is ITR but there will be no reference to any trading in the crypto; third is there is ITR and there will be reference to profit in the crypto trade but when you go into the profit, you find there are mismatches in the purchase and sale and fourth part is that there is a return, there is a crypto profit and sometimes the profit has been declared as income from other sources, sometimes as business income, sometimes as income from capital gains and various other varieties, he said.

"Only legislation will help us in knowing as to who is investing, how much is being invested, the quality of the investment, the nature of investment and whether people are making profits or losses," he said.

The two-year window provided to taxpayers to disclose omitted income and correct mistakes made in income tax returns, is not an amnesty scheme, Revenue Secretary Tarun Bajaj said on Wednesday emphasising that an additional 25 per cent tax will have to be paid on income that wasn't previously disclosed.

The scheme, proposed in the Union Budget presented on February 1, recognises that taxpayers may have for genuine reasons missed out on declaring an income and the window gives them a chance to amend their returns, Bajaj told PTI in an interview.

The window will be a permanent feature, allowing taxpayers to correct any discrepancy or omissions in their ITRs within two years of filing, subject to payment of taxes.

An additional 25 per cent on the due tax and interest would have to be paid, if the updated income tax return (ITR) is filed within 12 months, while the rate will go up to 50 per cent, if it is filed after 12 months, but before 24 months from end of relevant Assessment Year.

How this works is, if someone forgets to show an income of Rs 50,000 and the tax on it is Rs 15,000.

Then he/she will have to pay 25 per cent or 50 per cent extra tax (depending on when the updated return is filed) on the Rs 15,000.

Bajaj said since small investors are indulging in a lot of financial transactions, there are chances that they genuinely miss out on showing certain income in ITR.

Also, some people may have gone abroad and have not been able to file returns, they will get a chance to file returns.

"Small investors have entered the stock market, people have entered the crypto market. So, genuinely you may miss out on certain income to be shown. So, if your return filing last date is July-end and by December-end you can file a revised return. After that, you don't even have a chance to do it."

"The whole idea is, one, we give a chance to people if they realise they have made a mistake they can correct the mistake. But at the same time, if it comes to the notice of the tax department that taxes have not been paid, then action will follow. So once we start issuing notices, then you don't have this option (to file an updated return). If people start taking chances like that (by not filing the correct ITR originally), it will not work," he said.

Currently, if the I-T Department finds out that some income has been missed out by the assessee, it goes through a lengthy process of adjudication, and the new proposal would repose trust in the taxpayer.

The provision of filing an updated return will remove the "rough relationship" between a taxpayer and tax officer, who would have otherwise issued a notice asking for a penalty on due taxes.

"It is not telling the taxpayer that you will get a chance (to file ITR after 1/2 years). We are charging this extra tax because otherwise, a genuine taxpayer can also say that we will file later. It is not an amnesty scheme. It is going to be part and parcel of I-T law after it is passed by Parliament," Bajaj said.

In her Budget speech, Finance Minister Nirmala Sitharaman had said that the I-T Department has established a robust framework of reporting of taxpayers' transactions and some taxpayers may realise that they have committed omissions or mistakes in correctly estimating their income for tax payment.

"With this proposal now, there will be a trust reposed in the taxpayers that will enable the assessee herself to declare the income that she may have missed out earlier while filing her return," she said.



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