YEREVAN (CoinChapter.com) — Paying cryptocurrency taxes may mean being a good citizen, but it doesn’t always keep you from harassment and trouble. It became a nightmare for one crypto trader in India, where gains incurred by trading crypto assets are taxed above 30%. The authorities’ ignorance about blockchain’s basic workings meant he had to undergo an undue grilling.
In a recent development, the trader detailed their experience with the Income Tax Department through a post on X (formerly Twitter).
Indian crypto tax filing turns into a nightmare
On Dec. 21, 2023, Indian income tax officers arrived at Fren Zombie’s home with a search warrant. They proceeded to seize and clone his mobile phone and laptop, after which they conducted a thorough search. Although the search yielded no incriminating evidence, the Indian trader was shocked. What was going on?
He then discovered confusion about his cryptocurrency tax filings and what the tax officers thought were discrepancies in his Form 26AS.
Did you know? In the Indian tax system, Form 26AS is the comprehensive summary of income, taxes deducted at source (TDS), taxes paid, and other related information of the individual or entity.
Seeing their confusion, the crypto trader had to educate the Income Tax officers about blockchain and crypto transactions. Moreover, he gave them a detailed background on the workings of crypto exchanges in India and abroad. Moreover, the officers got a lesson about decentralized wallets.
Income Tax officers need blockchain education
However, much as he tried to explain things, almost everything he said allegedly went over the heads. One of the main points of their contention was the cost of acquisition of his crypto tokens in the user’s Income Tax Returns (ITR) filing.
Due to the transactions across various exchanges, the trader struggled to explain how complex it would be to determine the acquisition cost. However, although he had continuously paid crypto taxes since the fiscal year 2019-20 (initially as business income and later as crypto income), the Indian Income Tax officers didn’t seem to believe him.
Misunderstandings also arose from the difference in interpretation of Form 26AS. The taxation officers mistook the ‘Total Amount Paid/Credited’ section as the total value of the trader’s crypto portfolio. In reality, it represents the sum of his sales volume.
Despite his endeavors to clarify this misunderstanding, the officers scheduled a summons for further discussion.
The two-day ordeal shocked the user and included scrutiny of his chats and crypto conversations. Although he complied fully, the Indian trader is now preparing a simplified report of transactions from FY2019-20 to FY22-23 for the upcoming summons with the Income Tax department.
Regarding cryptocurrency taxes, India is among the nations with the highest brackets. But if the authorities expect traders to comply, they can only educate their officers in the basics. Unless the Income Tax Department gets up to speed, traders will face harassment even if they comply and pay taxes.
