Just the thought of paying tax on crypto transactions has generated creative memes in popular Indian digital culture. We get it! It’s not easy. The government’s proposal, which lays down how much crypto tax is to be paid, can give anyone a headache. It may be tweaked before it is finalized in March, but for the moment here is what it looks like.

Tax season starts on April 1, 2022. Indian Finance Minister Nirmala Sitharaman announced the proposals in her budget speech on Feb 1, declaring cryptocurrencies, non-fungible tokens (NFT) and any other crypto asset are, under a broad definition, “virtual digital assets.” This means crypto-assets and NFTs are subject to capital gains tax, similar to stocks in the equity market.

The date to file taxes for the year 2020-2021 has been extended three times and is now due on March 15, 2022.

For taxes to be filed for the year 2021-2022, April 1, 2022, is when one can technically start the process of calculating or filing returns but the last date for individuals is July 31, 2022. It’s worth noting that this date is often extended by the government.

For individuals and businesses required to undergo tax audit, the last date for filing tax returns for the financial year 2021-2022 is Oct. 31, 2022. The last date for filing tax returns for the financial year 2020-2021 has already passed (Feb. 15, 2022) for the following taxpayers:

A companyA person other than a company whose accounts are required to be audited under the Income Tax Act (ITA) or any other lawA partner of a firm whose accounts are required to be audited under the ITA or any other law or the spouse of such a partner (in certain cases)Filing of an audit report by taxpayer required to file an accountant’s report under Section 92E.Filing of accountant’s report under Section 92E.

The Finance Minister also said that “to provide an opportunity to correct an error, taxpayers can now file an updated return within two years from the relevant assessment year,” framing the move “as an affirmative step towards voluntary compliance.”

This step can also be construed as a signal to crypto investors to disclose gains and pay taxes on them from the last two years.

Tax lawyers say crypto users should pay their taxes from whenever they started making gains on their digital assets, irrespective of which year it was.

“The government can technically haul up a crypto dabbler for not paying taxes on gains from at least up to the last five or six years,” said Rajat Mittal, a tax lawyer.

It is advisable that if there are undeclared gains from the past years they should be declared in the returns for the period ending March 31, 2022.

The Indian government has set out a number of requirements for taxpayers in the legislation, including

30% tax on capital gains or profit from cryptocurrencies, NFTs or mining

This 30% tax on profit takes into account a 1% TDS (tax deduction at source) deposited by the facilitator/exchanges/person responsible for paying the consideration on every crypto transaction that can be calculated from July 1, 2022, onwards.

30% tax on gifts

The catch here is that gifts from immediate relatives are exempt but gifts from friends are not.

Start with a clean slate. This means calculating all crypto gains of every virtual digital asset you've owned since before April 2022.Maintain a record of the India Rupee (INR) value of cryptocurrencies at the time of sale (for example between bitcoin and ether) because you will pay your taxes in fiat currency and not cryptocurrencies. This is imperative because the value of cryptocurrencies constantly fluctuate.If you are doing a peer-to-peer trade without using an exchange then you need to have a tax deduction account number (TAN) for tax deducted at source (TDS). These TDS returns have to be filed on a quarterly basis.Individuals having profits on virtual digital assets have to file returns by filing the form known as Income Tax Return 1, 2, 3 or 4, as applicable.Businesses have to file returns by filing the form known as Income Tax Return 5 or 6, as applicable.Source for tax return forms applicability: https://cleartax.in/s/which-itr-to-file

All of these details must be compiled in an income tax return to be submitted to the income tax department. For all questions regarding taxation on crypto, the government has provided a memorandum explaining the provisions in the finance bill that can be accessed here.

This article was originally published on Feb 17, 2022.