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Common Errors While Filing ITR with Crypto Income and How to Avoid Them

By May 25, 20233 minute read
Note: This blog is written by an external blogger. The views and opinions expressed within this post belong solely to the author.

Over the years, the ITR filing process has been significantly optimized to make it more straightforward and intuitive for taxpayers. However, if you deal with cryptocurrencies and VDAs, your tax filing would be more complex than the regular ITR this year.

We have noticed that most taxpayers make these four types of errors while filing their ITR (with crypto income). Please double-check these cases before filing your ITR this year.

Error due to not considering all reports

While calculating the taxes on your crypto income, it is crucial to disclose all the components of a trading report. If you fail to disclose all transaction details, it will be difficult to calculate the exact profit and loss.

For example, let’s say you trade on WazirX and have to calculate taxes on your crypto earnings. Ensure that your trading report includes all transactions:

  • Exchanges trades
  • P2P trades
  • OTC trades
  • Deposits and withdrawals
  • Additional transfers
  • Current coin balance
  • STF trades
  • Transfers
  • Account ledger

Error due to not including transaction reports from previous years

To file an accurate tax report for FY 2022-2023 (AY 2023-2024), it’s essential to consider your previous year’s transaction data. Without knowing the token’s acquisition date and cost, determining profit and loss becomes unreliable, leading to inaccuracies in your filing.

Let’s say you bought 1 BTC on Binance in August 2017 and transferred your entire portfolio to WazirX in August 2022. During this time, the price of BTC underwent significant changes. If you only consider the 2022-23 report without accounting for the purchase price of BTC, you will mistakenly assume the BTC price at the time of transfer as the purchase price, leading to errors in your report. Even if you rely on tax calculation tools like TaxNodes, it’s crucial to include all your previous transaction data to ensure accuracy in your report.

Error due to not considering transactions happened on foreign exchanges

Many investors have the misconception of not reporting foreign exchange transactions while filing ITR in India, which eventually results in an incomplete report.

In any instance, if you have traded or invested through a foreign exchange, you need to consider the transaction in your tax report. The Income Tax Department might treat your report as incomplete and can levy penalties upon missing any such transactions.

Not Deducting TDS in Cases Related to P2P Transactions

In India, there is a requirement for crypto investors to deduct and deposit 1% Tax as TDS on their transactions. If you trade on Indian central exchanges, the exchanges will handle the TDS filing on your behalf. However, if you engage in a peer-to-peer (P2P) transaction with another Indian resident, it is your responsibility to file the TDS within the specified time frame. 

It is important to adhere to these regulations to ensure compliance and ethical behavior, avoiding any involvement in tax evasion practices.

Conclusion

It is highly recommended not to neglect the process of filing taxes on your cryptocurrency income, regardless of the number of transactions you have or whether you traded on a foreign exchange. If you are an Indian resident and have a tax liability, it is crucial to accurately file your taxes to prevent potentially significant penalties. Taking the responsibility to fulfill your tax obligations can help you avoid any adverse consequences and ensure compliance with tax regulations.

Disclaimer: Cryptocurrency is not a legal tender and is currently unregulated. Kindly ensure that you undertake sufficient risk assessment when trading cryptocurrencies as they are often subject to high price volatility. The information provided in this section doesn't represent any investment advice or WazirX's official position. WazirX reserves the right in its sole discretion to amend or change this blog post at any time and for any reasons without prior notice.
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Shivna Majumdar

Shivna Majumdar is the Finance Head at Taxnodes. IIM-A alumni and a Chartered Accountant by profession, Shivna have a keen eye for detail, exceptional problem-solving skills, and a deep understanding of financial regulations. With a passion for continuous learning and a results-driven mindset, Shivna is committed to delivering outstanding financial outcomes for organizations. Apart from her financial acumen, Shivna also has a passion for writing, which she channels into sharing her insights on various topics through her articles and blogs.

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