A TAXPAYER sells cryptocurrency at a profit, reports the transaction in the return but uses the wrong form to declare the same. Another adjusts a loss from one cryptocurrency against gains from another. Such errors in reportingVirtual Digital Asset (V DA) transactions have now drawn attention of tax sleuths in Nagpur, Wardha, and Amravati in the region. Interestingly, their numbers have reached a point wherein it is now being debated whether the same is part of deliberate offsetting of gains. Local inputs are indicating that hundreds of taxpayers have received communications from Income Tax Department seeking clarification over transactions that were allegedly not properly reported. A common error that has came to notice, sources said, is treating cryptocurrency transactions like share-market transactions. This error might be deliberate, sources shared, as to evade taxes but at this stage it needs further investigations to arrive at definite conclusions. Once the individuals responds to notices, the IT sleuths would be able to decide on exact nature of such ‘errors’. For taxpayers receiving such communication, the first step is to check the communication and deadline on the IncomeTax e-Filing account,” a source shared.

 

He added that the transactions referred to then need to be matched with exchange statements, wallet records and bank statements, along with Annual Information Statement (AIS), Taxpayer Information Summary (T IS) and applicable Tax Deducted at Source (TDS) details. Such errors were being observed since 2022 and have increased inVidarbha as years passed by, indicating involvement of greater number of persons with big money bags. Under the special tax provisions forVDAs, a loss from one VDA cannot be set off against income from anotherVDA. Similarly, income from transfer of VDAs is taxable at 30 per cent, along with applicable surcharge and cess.

 

So in case a wrong returns is submitted, it is most likely that the same would have entailed substantial benefit in terms of lesser tax bracket. But IT Department it is learnt is not yet pressing the button on this angle as they need to further analyse the trend, which is just now gaining currency in the capital market.The return form used for reporting the transactions is another area requiring close attention. Taxpayers with VDA transactions need to file ITR-2 where they do not have income chargeable under profits and gains of business or profession, and ITR-3 where such business or professional income is involved. Both forms contain Schedule VDA for reporting VDA transactions. However, many have been filing reports in ITR-1 or ITR-4 which caught attention of IT officials and hence they are focussing on reaching to bottom of this case.