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

## Introduction
Airdrops have become a popular way for cryptocurrency projects to distribute free tokens to wallet holders. But in India, these “free” coins come with tax responsibilities. Under the Income Tax Act, 1961, airdropped tokens are treated as income and must be reported to avoid penalties. This guide explains exactly how to calculate, declare, and file taxes on airdrop income while staying compliant with Indian regulations.

## Understanding Airdrop Taxation in India
According to Section 2(24) of the Income Tax Act, airdrops qualify as “income from other sources” at the time of receipt. The fair market value (FMV) of tokens on the day you receive them determines your taxable income. For example, if you receive 100 XYZ tokens worth ₹50 each on the airdrop date, you must report ₹5,000 as income regardless of whether you sell or hold them. This applies to all airdrops – whether automatic or claimable via tasks.

## Step-by-Step: Calculating Your Airdrop Tax Liability
Follow this process to determine what you owe:

1. **Identify receipt date**: Note the exact day tokens appear in your wallet.
2. **Determine FMV**: Use the token’s highest price across major Indian exchanges (like WazirX or CoinDCX) on that date.
3. **Convert to INR**: Calculate total value in rupees (Tokens Received × FMV).
4. **Add to total income**: Include this amount under “Income from Other Sources” in your ITR.
5. **Apply tax slab**: Your normal income tax rate (up to 30%) applies to this additional income.

*Example*: Receiving 500 tokens at ₹10/FMV = ₹5,000 taxable income. If you’re in the 30% slab, you’ll owe ₹1,500 in tax.

## Reporting Airdrops in Your Income Tax Return (ITR)
File accurately using these steps:

### For ITR-2/ITR-3 Filers:
– **Schedule OS**: Report the total FMV under “Income from Other Sources” (Description: “Crypto Airdrops”).
– **Schedule VDA**: Detail each airdrop transaction if tokens are later sold (showing acquisition cost as ₹0).

### Critical Documentation:
– Dated screenshots of wallet transactions
– Exchange price records for FMV proof
– Airdrop announcement details from project teams

## 4 Common Reporting Mistakes to Avoid
Steer clear of these errors that trigger tax notices:

– **Ignoring small airdrops**: Even tokens worth ₹100 are taxable.
– **Delaying reporting**: Income is taxable in the financial year of receipt, not when sold.
– **Wrong FMV calculation**: Using average or future prices instead of receipt-day highs.
– **Omitting foreign airdrops**: Global token distributions are still taxable for Indian residents.

## Airdrop Tax FAQ

### Is every crypto airdrop taxable in India?
Yes. All airdrops – whether promotional, governance tokens, or hard forks – constitute taxable income per CBDT guidelines. The only exception is if tokens have zero verifiable market value.

### How do I value airdropped tokens with no INR pairs?
Use a two-step conversion:
1. Convert token value to USDT or BTC on receipt date
2. Convert that value to INR using RBI reference rates

### Can losses from airdrop sales offset other income?
No. Crypto losses can only be carried forward for 8 years to offset future crypto gains – not against salary or business income.

### What if I received airdrops but didn’t file?
File a revised return (ITR-U) within 24 months. Penalties range from 50%-200% of unpaid tax plus interest under Section 234A/B.

## Proactive Compliance Tips
– Maintain a dedicated crypto ledger tracking receipt dates and FMV
– Consult a CA specializing in virtual assets for complex cases
– Use crypto tax software like KoinX or CoinTracker that auto-calculates airdrop FMV

Accurate reporting protects you from audits while legitimizing your crypto activities. As Indian tax authorities increase blockchain surveillance through Project Insight 2.0, transparency is your best strategy.