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ITR Filing: How to calculate the cost of acquiring cryptocurrency for income tax? appeared on www.businesstoday.in by Teena Jain Kaushal.
How to calculate the cost of acquisition of crypto? I don’t know my purchase price of my Bitcoin because of the wallet transfer, which is not accessible now. Should I calculate cost of acquisition based on the closing price of March 31st, 2022?
Name withheld on request
Reply by: Yeeshu Sehgal, Head of Tax Market, AKM Global, a tax and consulting firm.
Section 115BBH was inserted in the Income Tax Act, 1961, outlining the taxation rules for income generated from the transfer of virtual digital assets (VDAs). According to the section, if a taxpayer’s total income includes any income from the transfer of VDAs, the income tax payable will be a flat rate of 30% on the income derived from the transfer of such assets. Tax payable on the remaining income of the taxpayer will be computed after reducing the income earned from the transfer of VDAs.
To prevent the misuse of deductions and ensure a more accurate assessment of tax liability concerning VDA transactions, some limitations were put on deductions that can be claimed in respect of expenditure. While computing the income from the transfer of virtual digital assets, certain deductions, allowances, or set offs (excluding the cost of acquisition) will not be allowed.
Thus, in effect only the cost of acquiring such assets is allowed to be reduced from the sales consideration of such assets. The cost of acquisition typically refers to the original cost incurred by an individual when acquiring an asset.
We understand from your query that you do not have access to the exact purchase price of your VDA due to wallet transfers and inaccessible records and you want to use the closing price of such asset as of March 31st, 2022, as a proxy for the COA.
To address this potential issue, a pragmatic approach can be adopted by taking the lowest price of the virtual digital asset at the time of acquisition as the assumed cost of acquisition for tax purposes. This approach can be useful for mitigating challenges in determining the actual acquisition cost. It can be used to avoid unnecessary tax litigations and facilitate smoother tax calculations. In addition, if you are uncertain about the exact date of acquisition, there is an alternative approach you can consider. You can take the amount from your wallet statement, which is shown on the day of the transfer but that is prone to challenge. Further, you also have the option to use the lowest price recorded during the week or the month when you acquired the VDAs. It is pertinent to note there is no clarification available in respect to the cost of acquisition.
(Views expressed by the investment expert are his/her own)
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