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The recent Budget announcements did not contain anything specific for cryptocurrencies or VDAs. 

However, the Finance Bill contains an amendment to the Income Tax Act’s Section 271C that introduces stringent penalties for non-compliance with the TDS regulations concerning cryptocurrencies and other Virtual Digital Assets. This article aims to clarify the matter and address any questions that readers may have.

By examining the relevant sections of the Finance Bill, we will delve into the specifics of the amendments and provide an overview of the existing regulations.

Overall, the article aims to provide readers with an accurate and informative overview of the latest amendments to the cryptocurrency regulations introduced as a part of Budget 2023 and the implications post-Budget 2023.

All about the Finance Act 2023 Amendments Affecting Crypto Users

The Finance Bill under the Income Tax Act has laid out provisions for imposing penalties in cases of non-deduction of Tax Deducted at Source (TDS) under Section 194S. Under Section 271C of the Act, the failure to pay TDS may result in penalties equal to the unpaid TDS amount or a prison sentence that the joint commissioner of Income-tax may impose. The jail term can be up to seven years. In addition, in the event of a delay in payment, an interest rate of 15% per annum will also be levied on the imposed penalty.

The 1% (TDS) rate remains unchanged, although it has significantly impacted trade in VDAs.  Post the Budget 2022, the responsibility of deducting TDS was handed over to crypto exchanges in cases where crypto investors transact on centralized exchanges. Cryptocurrency exchanges reported a significant reduction in trading volumes as a result of the 1% TDS. Yet, there has been no change introduced in the Budget 2023, despite many representations made by various entities.

The stringent penalty introduced in the Budget for 2023 has reiterated that transacting on offshore exchanges or decentralized exchanges is no longer a viable option to avoid TDS, as now the onus to deduct TDS lies explicitly on the buyer. This is because Section 271C of the Act clearly states that every non-deduction of TDS will result in penalties as specified. Therefore, investing or trading in cryptocurrency through tax-compliant platforms like WazirX is advisable to avoid any legal consequences.

How to Declare Cryptocurrency Income and File Income Tax Returns for AY 23-24 (FY 22-23)

Effective April 1st, 2022, gains earned from cryptocurrency transactions will be subject to a 30% flat tax rate per the mandate outlined in the Finance Act 2022. To assist taxpayers in fulfilling their reporting obligations, the Income Tax Department has updated the Income Tax Return (ITR) forms to enable separate reporting of cryptocurrency income.

Taxpayers involved in cryptocurrency transactions are advised to ensure accurate and timely reporting to comply with the applicable tax regulations. Failure to comply with the tax laws may result in penalties and other legal consequences.

Significant Changes Introduced into the ITR Forms

The Income Tax Return (ITR) form for the assessment year 2023-24 has undergone some modifications concerning reporting requirements for specific categories of taxpayers. While salaried and individual taxpayers do not face any significant changes, the following adjustments have been introduced for crypto investors and intraday traders:

• Crypto investors now have a separate schedule- Schedule VDA in the ITR form to disclose their income from cryptocurrency trading.
• Intraday traders can now report their income from intraday trading or overall turnover in their trading accounts through a new option introduced in the ITR form 6.
• Individuals who have opted for the New Tax Regime under Section 115BAC of the Income Tax Act can also disclose it in the new ITR form.
• Additionally, taxpayers must disclose whether they fall under the category of foreign portfolio investors or foreign institutional investors.

These modifications have been implemented to streamline the reporting process for taxpayers and facilitate greater compliance with tax regulations. Affected taxpayers must be aware of these changes and ensure they accurately report their income and investment activities in their tax returns.

Final Thoughts

In conclusion, through various laws and regulations, the Indian Government has been trying to regulate the crypto ecosystem and safeguard investor money. Recently new regulations pertaining to the Prevention of Money Laundering Act, 2002 (PMLA) have also been introduced for crypto exchanges. The Government of India is also pushing for unified regulatory mechanisms and laws for cryptocurrencies through the G20 summit, the presidency of which rests with India for this year.

To avoid penalties, you should report all the transactions and file your tax returns with earned crypto income, on time, as per the applicable laws and rules. It is recommended to seek professional guidance in case of any confusion or uncertainty regarding the new rules and regulations. With proper knowledge and compliance, taxpayers can ensure a smooth and hassle-free tax filing experience in crypto. You can also use tools like TaxNodes to calculate and file your taxes.

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.