The Income Tax Department has added a new schedule called Virtual Digital Assets (VDA) to the Income Tax Return (ITR) form for the assessment year 2023-24. This new schedule is to help investors report their income from virtual assets.

Tax and investment experts have stated that the Government of India (GoI) has implemented a flat tax rate of 30% on income from virtual assets. They also advised that investors should maintain separate records for separate assets as income tax rules for virtual assets do not allow for setoff benefits.

Pankaj Mathpal, MD & CEO at Optima Money Managers, explained that cryptocurrency investors must keep separate records for different currencies. Under income tax rules, an income tax payee cannot claim a setoff benefit on losses incurred from any virtual asset investments. Therefore, an investor must pay 30% tax on their income from the select cryptocurrencies without deducting the loss incurred on other assets.

For example, if an investor earns ₹100 from select cryptocurrency investments and loses ₹80 on other crypto investments, then they must pay 30% of ₹100 earned on select cryptocurrencies. On the other hand, if other assets such as stocks are involved, then the investor must pay income tax on ₹20 (₹100 – ₹80) while claiming setoff benefit.

In addition to the above income tax calculation rules, Archit Gupta, Founder & CEO at Clear, suggests that investors should also be aware of other precautions. He said that the VDA schedule inserted in Schedule CG (Capital Gains) requires a quarterly breakup of the VDA income. Schedule VDA in the case of ITR-3 has two heads of income options for investors to choose from, i.e. reporting the income as Capital Gains or as business income. However, taxpayers should note that only the cost of acquisition is allowed to be deducted from the sale price.

Archit Gupta of Clear also recommends that taxpayers create a crypto Profit & Loss report to begin populating their ITR. He advised that both P&L and compliance should be done for filing the ITR schedules, especially if the taxpayer has multiple crypto transactions, a large number of TDS entries, airdrops, or is looking to maximize tax savings.