How Should NRIs Report Crypto in Indian ITR?

An NRI (Non-Resident Indian) needs to report any India-taxable crypto income from VDA (Virtual Digital Assets) in their Indian ITR. This is done using Schedule VDA in ITR-2 or ITR-3 with a flat tax rate of 30% plus cess on gains. Accurate reporting depends on the NRI's residential status, the location where the trade occurs (whether in India or foreign exchanges), and whether the income is "earned" or "received" in India.

Keep reading further to know more about how an NRI should report crypto while filing their Indian ITR (Income Tax Returns).

Does an NRI Need to Report Crypto in the Indian ITR?

NRIs are taxed in India only on the income that is either earned, received, or deemed to accrue or arise in India. Hence, crypto must be reported in your ITR if:

• You engage in trading on Indian exchanges (using INR pairs or Indian platforms).
• You obtain crypto from an Indian source (like salary, consulting, or rewards) or cash it in an Indian bank account.

Your gains will not be subject to taxation in India if all your crypto activities are conducted offshore, such as through foreign exchanges or transfers. Additionally, it doesn't have to be reported as Indian income; however, you must maintain complete documentation of your residency status and transaction history.

What is Considered Crypto Under Indian Tax Law?

Under the Income Tax Act, "Virtual Digital Assets" (VDAs) are recognized as a separate asset class, including cryptocurrencies (like BTC and ETH), NFTs, and other cryptographic tokens as identified by the government. Most tokens, including stablecoins and meme coins, are classified as VDAs and are subject to the same 30% crypto tax regime unless explicitly excluded.

Budget amendments clarify that any digital representation of value through a distributed ledger or similar technology that can be traded electronically qualifies as VDA. This lets several mainstream crypto instruments fall under the same tax rules.

When is Crypto Taxable for NRIs in India?

Crypto becomes taxable for NRIs in India when there is a transfer of a VDA linked to Indian tax situations. It can include sale, exchange (including crypto-to-crypto trades), or converting it to INR through Indian platforms or Indian residents. Key taxable events for NRIs are as follows:

• Selling crypto on Indian exchanges or peer-to-peer (P2P) platforms involving Indian residents.
• Swapping one cryptocurrency for another on Indian platforms. This is treated as a transfer of the outgoing coin.
• Getting crypto as payment from an Indian employer or client and selling it later (with the gains considered as VDA income).

Simply holding crypto without selling is not subject to taxation. However, once it's transferred within Indian jurisdiction, any resulting profits become taxable, even for NRIs.

What is the Tax Rate on Crypto Income in India?

Income from the transfer of VDAs is taxed at a flat rate of 30% under Section 115BBH, regardless of your slab and whether the individual is a resident or an NRI. Additional changes, such as a surcharge (if applicable) and a 4% health and education cess, apply to the tax amount. Here are some important points to remember:

• Taxable income comes from the sale consideration minus the acquisition cost. No deductions are allowed for trading fees, internet costs, or other deductions like Section 80C/80D against this income.
• Losses from one VDA cannot be used to offset any other income, nor can they be carried over to future years. 
• A 1% TDS under Section 194S is applied to qualifying VDA transfers, typically deducted by the Indian exchange or buyer and noted in AIS/Form 26AS.

Which ITR Form Should NRIs Use for Reporting Crypto?

The Income Tax Department specifies that NRIs must use ITR-2 or ITR-3 for AY 2025-2026, not ITR-1 or ITR-4. Relevant details include:

• ITR-2: For NRIs with salary, house property, capital gains (including crypto), and other income without any business or professional income.
• ITR-3: For NRIs who classify crypto as business income or have other income from business or profession (like systematic trading or market-making in crypto).

If you have any taxable VDA transactions in the year, you will have to fill out Schedule VDA (available in both ITR-2 and ITR-3), regardless of your residency.

How Can I Report Crypto in an Indian ITR?

You are required to submit detailed information in Schedule VDA for the individual categories of VDA income while filing ITR-2 or ITR-3. Here are the steps to follow to report crypto in the Indian ITR:

Gather Data

• Download trade reports via Indian exchanges and mark all sales, swaps, and withdrawals to Indian Rupees. 
• Use a reliable rate on the transaction date and convert foreign-exchange trades to INR if later sold on an Indian platform.

Calculate Transaction-Wise Gains

• To determine taxable income, compute the sale value (in INR) minus the acquisition cost (in INR) for each transfer; other than direct cost, ignore incidental expenses.

Fill Out Schedule VDA

• Fill in the type of VDA (crypto/others), acquisition date, date of transfer, sale consideration, and acquisition cost for each line or consolidated block according to the utility options.
• The utility calculates income from VDA automatically and is later taxed at 30% separately from slab-based income. 

Combine TDS Under Section 194S

• Match 1% TDS entries from Form 26AS/AIS with your exchange statements and claim the credit under "TDS details" to minimize final payable tax or increase the refund.

When it comes to aridrops, staking rewards, or mining income routed through Indian exchanges, numerous practitioners first consider the fair market value on receipt as income (generally "other source" or business). After that, they treat the sale as a separate VDA transfer with its own gain in Schedule VDA.

Do NRIs Have to Report Crypto in Schedule FA?

Schedule FA (Foreign Assets) is not mandatory for Non-Residents (NR) or Resident but Not Ordinarily Resident (RNOR) taxpayers. However, it is required only for Resident and Ordinarily Resident (ROR) individuals who hold foreign assets. Hence:

• If an NR (non-resident) holds crypto on foreign exchanges or in foreign wallets in that year, it doesn't mean they need to fill Schedule FA. 
• Upon becoming an ROR (e.g., a returning NRI who exceeds the residency thresholds), you need to start reporting overseas crypto wallets, foreign exchange accounts, and other offshore assets in Schedule FA and other related schedules.

If Schedule FA is applicable and you don't report foreign assets, you may attract rigid penalties. It can include hefty fines of up to Rs. 10 lakh and even prosecution under the Black Money Act.

Final Thoughts

For NRIs, Indian taxation on crypto is only applicable when there is a tie to an Indian entity, such as trading on Indian exchanges or recieveing payments in Indian rupees. You must report such gains on Schedule VDA of ITR-2 or ITR-3, which will be taxed at a flat rate of 30% plus cess. Generally, purely offshore trades by NRIs remain exempt from taxation in India if both accrual and receipt are done abroad. However, thorough residency documents and transaction flow are mandatory for defense and future changes in residency.

Furthermore, if you need expert consultancy regarding NRI crypto taxation, connect with Savetaxs. We have an entire team of expert professionals who can guide you with all your crypto taxation issues or NRI tax obligations. They carry years of expereince and can help you in better tax planning. Connect with our team today