How to Report Airdrop Income in India: Complete Tax Guide for 2024

Understanding Airdrop Income and Indian Tax Laws

With the rise of cryptocurrency in India, airdrops have become a popular way for blockchain projects to distribute free tokens to wallet holders. But when free crypto lands in your digital wallet, the Income Tax Department considers it taxable income. Under Section 2(24) of the Income Tax Act, 1961, airdrops qualify as “income from other sources” at the time of receipt. The valuation is based on the token’s fair market value in INR when you gain control of the assets.

Step-by-Step Guide to Reporting Airdrop Income

1. Record Transaction Details: Document the date of receipt, token quantity, and INR value at receipt time using exchange rates from platforms like CoinMarketCap.
2. Classify Income Type: Report as “Income from Other Sources” in your ITR. Business recipients might classify under “Profits and Gains from Business”.
3. Calculate Taxable Value: Use the token’s highest price across Indian exchanges on the receipt date. For example, receiving 100 XYZ tokens valued at ₹50/token = ₹5,000 taxable income.
4. File in ITR Form: Include the amount under Schedule OS in ITR-2, ITR-3, or ITR-4 depending on your income sources.
5. Report Subsequent Sales: When selling airdropped tokens, calculate capital gains (short-term if held <36 months) based on cost basis (original receipt value).

Critical Tax Calculation Scenarios

• Direct Airdrops: Full value taxable upon receipt
• Staking Rewards: Treated as additional income upon claim
• Hard Fork Coins: Taxable when you gain control of new assets
• NFT Airdrops: Valued at marketplace price at receipt time

5 Costly Mistakes to Avoid

• ❌ Ignoring small-value airdrops (all income must be reported)
• ❌ Using USD values instead of converting to INR
• ❌ Forgetting to track receipt dates for 36-month holding period
• ❌ Omitting airdrops received in private wallets (not just exchange accounts)
• ❌ Missing TDS deductions if tokens are received as business payments

FAQs: Airdrop Taxation in India

1. Are unsold airdropped tokens taxable?

Yes. Taxation occurs upon receipt, not when sold. The fair market value at the time of receipt becomes your taxable income.

2. What if I receive tokens worth less than ₹5,000?

All airdrops are taxable regardless of value. The ₹5,000 threshold applies only to gifts under Section 56(2)(x), not crypto income.

3. How do I prove acquisition cost during sales?

Maintain screenshots of: 1) Blockchain transaction IDs 2) Exchange rate proofs 3) Wallet balances with dates. Use crypto tax software like Koinly for audit trails.

4. Can losses from airdropped tokens be offset?

Yes. If you sell at a loss after initial taxation, capital losses can be offset against other capital gains for 8 assessment years.

5. Do I need to pay GST on airdrops?

Currently no. The GST Council hasn’t classified crypto airdrops as goods/services. Only income tax applies.

Documentation and Compliance Tips

Maintain immutable records using blockchain explorers and timestamped exchange data. For significant airdrops (>₹10 lakhs), disclose in Schedule AL of your ITR. Consider professional help if you’ve received multiple airdrops across tax years. The CBDT’s new Form 26AS now includes crypto transactions reported by exchanges, making accurate reporting essential to avoid notices.