There is confusion among many taxpayers on how to show the cryptocurrency earnings while filing ITR as there are no proper guidelines are available from the income tax authorities on how to disclose the earnings from the investments in cryptocurrencies. The Government has also extended the due date to file ITR for the FY 2020-21 to September 30, 2021. As per the Income Tax Act, anyone who has an annual income of more than Rs 2.5 lakhs or anyone who received a payment on which tax deducted at source, has to file ITR showing all the earnings.
Cryptocurrency Earnings in India
In India, the cryptocurrency market is in a nascent stage. Individuals who have invested in cryptocurrencies are unsure of how to disclose the earnings from it in the absence of clear guidelines to classify earnings from virtual currencies. RBI has not accepted cryptocurrencies as currency, neither has income tax law. So, cryptocurrency does come under Indian currency or foreign currency. As per Section 2(14) of the Income Tax Act, 1961, a capital asset is any kind of property held by a taxpayer, whether or not related to his business or profession. The Income Tax law considers the earnings from cryptocurrency as property and the tax implications for the earnings received from investments from cryptocurrencies will be the same as one holding any other property. Simply put, the profit or gains received from cryptocurrencies can be taxed as capital gain if the profit is received with the intention to create wealth, or can be taxed as business profit if the gains are acquired with the intention to make a profit by trading or mining. In the ITR form disclosure of the profit or gain received from cryptocurrency have to be shown on the basis of the decision taken by the taxpayer, whether a capital gain or business profit.
The cryptocurrency earnings are taxable and can be classified as either capital gains or business income. Cryptocurrency earnings can be taxed as a short- or long-term capital gain depends on the duration of the investment. It can be also be highlighted under the Income from Other Sources while filing tax returns.