In the world of growing crypto transactions, accurate reporting and calculations are of utmost importance. However, due to the intricate nature of such transactions, errors tend to happen in calculating taxes and extracting reports of the overall portfolio. To ensure a seamless tax filing experience and obtain an error-free report, it is crucial to identify and address common errors experienced by users.

By understanding the intricacies of crypto transactions and implementing best practices, users can optimize their reporting accuracy, mitigate risks, and maintain compliance with tax authorities.

Critical Crypto Tax Calculation Pointers

Adjustment of losses

Investors involved in trading crypto assets are under the impression that similar to other speculative transactions, one can set off and carry forward losses from crypto trading. However, Section 115BBH clearly states that carrying forward and setting off losses is prohibited.

Taxable profits

Investors are of the view that they can deduct expenses such as brokerage fees paid, transactions cost, and convenience fees from their gross profits. The law strictly states that only the acquisition cost can be subtracted from sale proceeds, and the resultant gross profit will be subject to 30% taxation.

Crypto income before 1st April 2022 is taxable

It is a common opinion that there was no taxation before 1st April 2022. However, it is pertinent to note that prior to 1st April 2022, gains from crypto were taxable as business income or capital gains.

Stablecoins like USDT are considered crypto assets

Stablecoins like USDT, which have their value pegged on currencies like US$, are also considered Virtual Digital Assets per Indian law. Therefore, if you are trading USDT, you should comply with the taxation provisions of Section 115BBH and 194S, respectively.

TDS on P2P transactions

Section 194S states that 1% TDS is to be deducted by the buyer purchasing from an Indian resident. However, if transactions are taking place on Indian exchanges, the exchange itself is required to deduct TDS and deposit the same with the government. The investors should ensure that the exchange they are trading on complies with the TDS provisions.

Crypto assets disclosure in ITR

Investors are of the view that there is no schedule in ITR forms where the details can be given regarding the crypto assets. It is essential to clear such misconceptions as the Union budget 2022 introduced ‘Schedule VDA’ in the ITR forms. This schedule requires details of the cost of acquisition, purchase date, sale, and sale proceeds. Therefore, disclosing all your details concerning crypto assets in Schedule VDA is mandatory.

Valuation

The First In, First Out (FIFO) method ensures that the oldest holdings are accounted for first, providing a systematic approach to determine the cost basis and calculate gains or losses when dealing with multiple transactions or acquisitions of crypto assets over time. FIFO is commonly used for tax purposes and ensures consistency in valuation while adhering to established accounting principles for accurate financial reporting.

How to get an Error-Free Report

Missing Purchase History

What is meant by missing purchase history?

It refers to an incomplete record of the acquisition of cryptocurrency. It occurs when the purchase transactions made by an investor are not adequately documented or recorded. As a result, the historical data may have gaps or inconsistencies that reflect the investor’s ownership. This can create challenges when calculating capital gains, determining the cost basis of shares, or reporting accurate information for tax or regulatory purposes.

One of the common challenges users encounter is missing purchase history, mainly when crypto assets purchased in previous years are sold in the current year. This situation may result in a mismatch between the available sales data and the corresponding purchase data. To address this, uploading all purchase history from previous years is essential to ensure an accurate report. 

Wallet Synchronization

Occasionally, wallet synchronization can take time, leading to a delay in data updates. It is crucial not to repeatedly click the sync button in an attempt to speed up the process. Doing so may result in duplicate entries and confusion caused by multiple wallet syncs. It is advisable to exercise patience and allow the system sufficient time to sync the data properly. Checking the wallet status after a reasonable interval will help prevent unnecessary duplications and maintain data integrity.

Hasty plan purchases

Common pitfall users face is impulsively purchasing report plans without fully understanding the process flow and assessing their transaction history. To avoid this, it is recommended to follow a systematic approach. Begin by thoroughly exploring the portal, familiarising yourself with the available features, and uploading your transaction history. Take the time to review the number of transactions conducted before deciding on the appropriate plan to purchase. This thoughtful approach ensures that the chosen plan aligns with your specific needs and requirements, leading to a more accurate and valuable report.

Conclusion

In conclusion, accurate reporting and calculations are crucial in crypto transactions to optimize your tax filing process with precise, error-free reports. To get an error-free report, it is vital to address challenges such as missing purchase history by uploading all relevant data, exercise patience with wallet synchronization to prevent duplicate entries, and avoid hasty plan purchases by thoroughly understanding the process flow and transaction history. By following these guidelines and using tools like TaxNodes, users can ensure accurate and reliable crypto tax calculation and reporting.