Your guide to reporting digital assets in income tax returns

Spot trading, peer-to-peer (P2P) transfers and the sale of a VDA, including selling for INR or for another coin, are all reported under Schedule VDA. Cryptos received as gifts, airdrops, and staking rewards are reported under ‘Income from Other Sources’. However, if the gifted coins, airdrops and cryptos received as stake rewards are sold in the future, they are treated as a sale and reported under Schedule VDA.

There’s a third category of crypto futures with an INR margin, meaning the trades are settled in INR instead of crypto. These transactions are treated as business income, as no crypto is actually bought or sold. They should be reported under ‘Income from Business and Profession’ in ITR-3.

Reporting process

Taxpayers have the option to file online on the e-filing portal or offline through the Excel utility. The latter is useful if you have a bulk of crypto transactions to report, as filing each one manually online can be cumbersome. The Excel utility lets you copy and paste all transactions in one go from your gains statement.

However, chartered accountant Sonu Jain cautions that filing ITR through the offline utility is complex and should be used when you have few or no other incomes to report besides the cryptocurrency transfers.

In the online process, first select the right form between ITR-2 and ITR-3. ITR-3 is for people with business income, which includes INR-margined futures, while ITR-2 is for others. Detailed reporting is done via two schedules: Schedule VDA and Schedule CG (Capital Gains).

In Schedule VDA, each crypto sale must be recorded individually—you enter the acquisition date, sale date, cost of acquisition, and the sale value. Take note that you cannot deduct expenses, and only actual purchase and sale values are allowed. The tool then calculates net gains or losses based solely on these values.

If your sale results in a loss, the utility shows zero income, because losses from VDAs cannot be offset.

Schedule CG

After populating VDA, the data flows into Schedule CG, specifically under the section titled ‘Income from transfer of Virtual Digital Assets’. Reconcile the total gains in this section.

From there, you must go to Section F to report crypto gains quarterly. For example, say you sold some coins in May 2024 and a few in November 2024. These two transactions are to be reported in quarters up to 15/6 and 16/9 to 15/12, respectively. This breakdown helps tax authorities compute interest on any shortfall in advance tax payments if you have underpaid during the year.

As a last step, make sure any Tax Deducted at Source (TDS) on your VDA income is properly adjusted against your overall tax liability. This ensures you don’t overpay or underpay when your final tax.