In accordance with the tax laws in force, a natural person is required to declare all his foreign assets, regardless of his level of income. So, should you report your cryptocurrency investments while you deposit your RTI for fiscal year 2020-21?
What the income tax rules say
Here’s what the current tax rules say about reporting cryptocurrency holdings in your RTI:
1) If an individual’s net taxable income exceeds Rs 50 lakh, then he / she will have to report his / her assets and liabilities using Annex AL of the ITR form.
2) Likewise, if an individual owns foreign assets such as investments in stocks listed in the United States, they must report all of their assets and liabilities, regardless of the total income for a fiscal year. A natural person with assets abroad or who is the beneficiary of any asset or having signing authority over an account located outside India is required to file an ITR even if their gross total income is less than the basic income exemption limit.
This second point is the reason why the question of reporting crypto assets in ITR arises. Indeed, it is not clear whether crypto holdings are classified as Indian or foreign assets. In the case where it is the latter, it would then be necessary to declare these assets in its ITR, whatever the level of income of the investor.
ET Wealth Online spoke to five tax experts on whether cryptocurrency holdings should be reported by individuals when filing RTI for fiscal year 2020-21. Here’s what they have to say:
S. Vasudevan, Executive Partner, Lakshmikumaran & Sridharan Attorneys, an Indian law firm specializing in tax matters, says: “There are no clear guidelines available from the tax authorities on the treatment of cryptocurrency. As cryptos have not yet obtained legal tender status in India, it will most likely be treated as a asset or commodity. It will be qualified as an investment or a market value depending on the nature of the activity and the intention of the individual. For example, it will be a stock market value in the hands of ‘An individual who trades frequently in cryptos as a business and generates income from those transactions may be taxable as business income. On the other hand, it may be a long-term asset or short term held by an investor and income from the sale of this asset may be taxed as capital gains. The treatment may be different in the hands of an individual who is engaged in the crypto mining business . All individuals, who are engaged in the activity of former traction or trading, will need to disclose the cryptos they hold as trading shares on March 31, 2021 in their ITRs. In addition, any c rypto held as an investment will have to be disclosed in the RTI by individuals, who are subject to a tax audit. Significantly, there is no clarity as to whether the crypto will be considered an Indian or a foreign asset. In the event that crypto is treated as a foreign asset, all residents will be required to disclose their holdings in the RTI, regardless of their income limits. Failure to disclose foreign assets can expose individuals to strict procedures under the Black Money Act. ”
Sujit Bangar, EX-IRS agent and founder of TaxBuddy.com, an RTI filing website, said: “The government has not given any special instructions regarding the taxation of bitcoins or the gains / profits associated with the cryptocurrency. Therefore, the general rules of the Income Tax Act regarding the sale-purchase of Any asset, like gold for example, would be applicable to bitcoin / cryptocurrency. Derivative income from the sale of cryptocurrency can be classified as capital gains or business income. It depends on whether the portfolio is maintained as an investment or trading. earnings “. If one holds a cryptocurrency for less than 36 months then the gains / losses will be short term and in case it is held for more than 36 months then the gains / losses will be long term. Even the capital gains deduction under Section 54F can be used against LTCG from the cryptocurrency gains if the gain is invested in residential property. If the nature of the sale transaction, the purchase of bitcoin is trading, so the income from that sale can be treated as business income and can be taxed accordingly. If there is a loss, it can be reported as a normal business loss. The declaration of the holding of cryptocurrency as an asset in ITR is required if the taxpayer holds cryptocurrency and the taxable income exceeds Rs 50 lakh. We need to complete Annex – AL containing details of asset and liability if the taxpayer has income above 50 lakhs per year and holds cryptocurrency as an asset. There is no clarity on how to determine whether the cryptocurrency is an Indian or a foreign asset. However, one way to determine whether the exchange from which the cryptocurrency is purchased is based in India or overseas. If he is based in India, then he can be considered an Indian asset. However, if the exchange is outside India, your cryptocurrency holdings may be considered foreign assets that are required to be reported in ITR regardless of income level. This is similar to mutual fund funds of funds where India based mutual funds invest in overseas based funds or index systems. Such patterns are not required to be reported in the RTI by an individual. On the other hand, direct investments in US stocks must be reported in the RTI. ”
Rashmi Deshpande, partner, Khaitan & Co., a practicing lawyer says, “If an individual is in substantial crypto trading, he / she may have to treat the income as business earnings. As a result, he / she will be subject to income tax in the business income category. . However, if the exchanges are infrequent and there is no movement for a long time, the income may qualify as a capital gain. On an individual basis. The tax authorities are not clear on whether crypto assets can be treated as fixed assets or whatever. Therefore, until such clarity is achieved, it is best to treat crypto assets as fixed assets. ”
Amarpal Chadha, tax partner and mobility leader in India, says EY: “There is a reporting requirement in the RTI’s table of assets and liabilities with respect to the specified assets, along with the acquisition cost and related liability, applicable to taxpayers whose income exceeds Rs 50 lakhs over the course of the year. ‘an exercise. There is an ambiguity because as to whether the cryptocurrency is considered an asset specified as “stocks and securities” or “cash on hand” to trigger such a declaration and, if so, in which line of said annex the taxpayer must declare cryptocurrency. as residents and ordinary residents, foreign assets and income must be reported in the foreign asset table of the RTI. Whether the cryptocurrency is considered a foreign asset or the income from that cryptocurrency is foreign income, these are points that are not specifically provided for in the tax or clarified by the CBDT. criminal under the Tax and Black Money laws (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, it may be prudent for taxpayers to disclose cryptocurrency holdings in the Foreign Assets Table or revenues. There is no income threshold (as in the case of the table of assets and liabilities) for reporting in the table of foreign assets “.
One of the accountants who declined to be quoted said that there is no clarity as to whether the cryptocurrency is an Indian asset or a foreign asset. One way to determine this is the location of the servers. If the servers exist outside of India, this can be considered a foreign asset. According to tax laws, foreign assets must be reported in the ITR, regardless of income level. However, there is no specific timeline by which cryptocurrency holdings can be reported in this year’s ITR forms. If you are someone who owns cryptocurrency holdings, it would be prudent for individuals to continue to report their cryptocurrency holdings while depositing their RTI for fiscal year 2020-21 in order to avoid criminal consequences to the future. The declaration must be made in Annex FA.