Nagpur Region Taxpayers Face Scrutiny Over Crypto Reporting Errors

Taxpayers in Nagpur, Wardha, and Amravati are currently facing scrutiny from the Income Tax Department due to errors in reporting cryptocurrency transactions. Reports indicate that many individuals have incorrectly declared their Virtual Digital Asset (VDA) transactions, leading to inquiries from tax officials. These errors have raised questions about whether they are deliberate attempts to evade taxes or simply misunderstandings of the reporting requirements.

The Income Tax Department has reportedly reached out to hundreds of taxpayers in the region, requesting clarifications on their cryptocurrency transactions. A significant number of these individuals have been found to treat their cryptocurrency dealings similarly to stock market transactions, which is a common error. This misclassification could potentially lead to tax evasion, prompting the need for further investigation by tax authorities.

Sources indicate that taxpayers receiving notices should first verify the details in their Income Tax e-Filing accounts and check the deadlines for responses. They are advised to match their reported transactions with exchange statements, wallet records, and bank statements, along with the Annual Information Statement (AIS) and Taxpayer Information Summary (TIS). Since 2022, these reporting errors have become more prevalent in Vidarbha, suggesting that an increasing number of individuals are engaging in cryptocurrency trading.

Under current tax regulations, losses from one VDA cannot be offset against gains from another VDA. Additionally, income derived from the transfer of VDAs is subject to a flat tax rate of 30%, along with applicable surcharges and cess. Taxpayers who submit incorrect returns may benefit from a lower tax bracket, but the IT Department is cautious and is not yet taking definitive action until they can thoroughly analyze the emerging trends in cryptocurrency reporting.

The choice of tax return form is another critical aspect under scrutiny. Taxpayers involved in VDA transactions are required to file either ITR-2 or ITR-3, depending on whether they have business income. However, many have mistakenly filed ITR-1 or ITR-4, which has attracted the attention of tax officials. The Income Tax Department is now focused on investigating these discrepancies to ensure compliance and address any potential tax evasion.