Are Crypto Investors Stuck With Tax Model, Processing & IT Notices?

The new taxes rules that went into effect this fiscal year have put crypto investors in a bind.

Even if some cryptocurrency investors have experienced significant losses on their investments overall, they must pay taxes on transactions where they realised gains. This is because, unlike equity and other investments, where one may adjust profits against losses and even carry over long-term losses for up to eight years, crypto currency investors are not permitted to adjust gains against losses.

Manjit Chahhar, 42, an architect from Gurugram, had invested Rs 1 lakh in cryptocurrency. He made a profit of Rs 25,000 during the year. However, he also sustained losses of Rs 45,000. So, despite the fact that the entire portfolio value of Rs 80,000 is Rs 20,000 less than the original amount, he has pay 30% tax on the Rs 25,000 gained, or Rs 7,500.

In Parliament, the administration confirmed that losses from various cryptocurrencies such as Bitcoin, Dogecoin, and Ethereum cannot be adjusted individually.

To be sure, in the case of assets such as stocks or real estate, a loss in one stock or property can be offset by a gain in another stock or property. If you have made losses in such assets and are unable to offset them during the same assessment year due to a lack of returns, you can offset these losses over the next eight years.

“Although the formal taxation of 30% is comparable to lottery winners, the real taxation is 50-60% because earnings cannot be offset by losses.” Furthermore, a loss in one crypto currency and a gain in another cannot be compensated.” 


1% TDS Effect

While many investors are becoming aware of the 1% tax deduction at source (TDS), exchanges have not informed them of the taxation changes. “I learned about the TDS judgement from a group of crypto investors and was not informed about it by the two apps that I have been using to trade in cryptocurrency,” says Deepali Lakhanpal, a Mumbai resident.

When investors buy and sell equities, the capital gains statement is usually made available to demat account holders to help with tax compliance. However, no cryptocurrency exchanges or applications currently provide a capital gains statement.

Notices Are Sent To Investors.

Due to the lack of laws surrounding crypto currencies previous to the February 1 Union Budget presentation, investors declared these assets as business income and capital gains. They had difficulty calculating the exact profits and losses.

To make matters worse, many cryptocurrency exchanges have closed in the last year, leaving many investors without statements. “At the end of each day, the account simply reflected $5 purchased and $1 sold.” “I don’t have any general statements from the exchange,” says one investor in Koinex, which went bankrupt in 2019. He refused to be identified.


However, the government has attempted to obtain information about the investments made through these exchanges, especially Zebpay and Koinex, and has given letters to the persons involved.

“The Income Tax Department obtained data from crypto exchanges and sent pre-intimations and notices to those individuals based on PAN details.” Due to the closure of a few cryptocurrency exchanges, users were unable to obtain previous statements. “They have an automated ledger system that is too hard to understand,” Batra says.

As a result, there are disparities between the individual’s claimed transacted value and the amount declared by the exchange. According to one of the taxpayers interviewed by Moneycontrol, he declared a trading value of Rs 22 lakh based on bank records. However, the Income Tax Department informed him that a total transacted value of Rs 1.3 crore is displayed against his PAN.

Source of Income, Old filed Returns & Financial Statements Sought by Dept.

The primary problem that most crypto investors face these days, particularly those who have received income-tax notices, is compiling profit and loss figures for previous transactions. Even extending back four to five years, according to some chartered accountants contacted by Moneycontrol. Many people refused to be interviewed for this story.

Furthermore, some of these CAs claim that individuals must prove their source of income for money invested in cryptos. This profit and loss account statement should seem similar to what you get when you calculate stock market capital gains. If your crypto exchange has so far provided you with an account, that’s great. Individuals may only need to return to their exchanges for a proper summary of the rest. Many CAs believe that it is easier stated than done.

The second major problem is determining how much tax you would have paid on cryptocurrency gains in the past. Since Budget 2022 declared a 30% tax on cryptocurrencies, it cannot be presumed that such gains were previously tax-free.

Instead, CAs warn us that it must be proven to the tax department on what basis each and every crypto investor paid taxes in prior years, whether it was capital gains tax or the maximum tax rate depending on their income tax slab.

It remains to be known how the tax authority would regard previous crypto transactions, including taxes paid at rates lower than 30%.

Help Is On The Way.

So, how do you produce a complete account of your crypto trading? On the condition of anonymity, a crypto currency investor informed Moneycontrol that his chartered accountant charged him Rs 1 lakh for this calculation.

However, services for crypto currency investors will be accessible soon. “Some aggregators are approaching e-return intermediaries (private portals that help taxpayers file their tax returns) to offer cryptocurrency investors a statement of account service and calculate the overall gains across multiple crypto currencies,” says Sudhir Kaushik, co-founder and CEO of