Income Tax Tribunal Ruling: Cryptocurrencies Treated As Capital Assets For Taxation

The Income Tax Appellate Tribunal (ITAT) in Jodhpur has passed a landmark decision related to taxation of cryptocurrencies.

It clarified that profits from cryptocurrency sales before 2022, when the government introduced specific regulations for Virtual Digital Assets (VDAs), should be classified as capital gains, not income from other sources.

The ITAT Bench, consisting of S. Seethalakshmi and Rathod Kamlesh Jayantbhai, directed that long-term capital gains (LTCG) benefits be applied to the profits, as the assets were held for an extended period.

Pre-2022 Sales Taxed As Capital Gains

Cryptocurrencies, such as Bitcoin and Ethereum are now categorised as capital assets under the ITAT, which means that any profits from their sale will be subject to capital gains tax. For holdings over three years, the profits qualify for LTCG with favourable tax rates.

On the other hand, if the holding period is short, the profits will be taxed at the short-term capital gains (STCG) rate.

The case before the ITAT concerned an individual who had purchased cryptocurrencies for Rs 5.05 lakh in 2015-16 and sold them for Rs 6.69 crore in 2020-21. Since the cryptocurrencies were held for over three years, the taxpayer argued that the profits should be treated as LTCG, as there were no specific tax rules for cryptocurrencies before 2022.

Post-2022 Sales: Flat 30 per cent Tax on Crypto Profits

For post 2022 transactions, however, the Indian government’s 30 per cent flat tax will apply, regardless of the holding period.

This means that profits from the sale of cryptocurrencies after April 1, 2022, will be taxed at a fixed rate of 30 per cent, with no deductions allowed for expenses or transaction fees. This flat tax rate will apply uniformly, whether the cryptocurrency was held for short term or long term.

Also, appropriate tax reporting requires keeping thorough records of all cryptocurrency transactions including purchase and sale dates as well as profits made. This will help prevent any potential problems during tax filing and guarantees adherence to the tax regulations.

Vedang Vatsa, founder, Hashtag Web3 said, “The Jodhpur Tribunal’s recognition of Bitcoin as a capital asset is a significant step forward for India’s digital asset taxation, aligning with global practices and highlighting the challenges of adapting laws to emerging digital assets.”