Crypto tax in India — what should I check first?

Assume you cannot, and establish the position for the year in question before doing anything else. The regime for digital-asset transfers sits apart from the ordinary rules, and the loss set-off you would expect elsewhere does not carry across in the same way. That has an awkward consequence: a portfolio that broke even over a year of trading can still produce a taxable amount, because gains are charged on transfer while losses do not necessarily reduce them. Compute each transfer on its own terms rather than netting the year.

Because the regime applies a deduction at source at the level of the transaction rather than at the end of the year. The platform withholds as it settles, so the deduction bears on the amounts you transfer as you trade, not on the profit you end up with. The consequence is that you can finish a year with tax already deducted and a modest or even negative economic result. The deduction is not the final tax. It is an amount to be brought onto a return and reconciled against the liability actually computed.

If tax has been deducted at source on your transfers and the liability you actually owe differs from it, a return is how the two are reconciled. There is no other mechanism. A non-resident dealing on an Indian platform therefore usually has a filing to make, even where the final position turns out to be small. The return is also where a treaty position is stated. Leaving it unfiled does not make the deduction go away; it leaves an amount deducted, a liability uncomputed, and nothing on record connecting the two.

Only through a computation on a return, and only to the extent the deduction exceeds the liability properly due. The work is therefore in the reconciliation: matching each deduction to the transfer it relates to, computing the amount actually chargeable under the regime's own restricted deductions, and setting out the treaty position where one is being relied on. Platform statements and deduction records frequently do not tie to each other, so expect the matching exercise to take longer than the computation it feeds.

Deductions under this regime are restricted, and that is the single feature most people are surprised by. It is not a business computation in which the costs of earning the income come off the top. Work on the basis that expenses you would normally expect to claim may not be available, establish what is actually allowed for the year concerned, and compute each transfer accordingly. Planning that assumes a full deduction of costs, or netting across transactions, tends to produce a liability much larger than forecast.

It might allocate the gain, and it might not reach it at all. That depends on the treaty and on how the asset and the transfer are characterised, and it is a question to settle before the return is filed rather than after. What a treaty never does is displace the deduction the platform has already taken at source. Even where the treaty position is a good one, the deducted amount comes back only through a return that states the position and reconciles the figures behind it.

DTAA — a Double Taxation Avoidance Agreement — is India's term for a tax treaty. It allocates taxing rights between India and the other country, caps withholding on cross-border payments, and gives relief for income taxed twice by either exempting it or crediting the foreign tax. Relief is claimed, and from the Indian side that normally means a tax residency certificate, Form 10F and Form 67. See DTAA relief.

Receiving your own money is not income, and a gift from a specified relative is exempt however large. Two things do bite. A gift from someone outside that relative list is taxable to the recipient once the year's receipts pass the threshold in the gift provisions. And money that is really payment for something — fees, rent, interest, a share of profit — is taxed as that income whatever the bank narration says. The paperwork should match the substance. See gifting money to family in India.