tl;dr
The Income Tax Appellate Tribunal (ITAT) in Jodhpur, India, has ruled that profits from crypto sales before the introduction of the Virtual Digital Asset (VDA) regime in 2022 are to be treated as capital gains. This decision classifies crypto, including Bitcoin, as capital assets, reducing the tax b...
The Income Tax Appellate Tribunal (ITAT) in Jodhpur, India, has ruled that profits from crypto sales before the introduction of the Virtual Digital Asset (VDA) regime in 2022 are to be treated as capital gains. This decision classifies crypto, including Bitcoin, as capital assets, reducing the tax burden for early adopters.
The ruling stemmed from a case where an individual purchased Bitcoin in 2015-16 and sold it in 2020-21, arguing that the gains should be treated as long-term capital gains. The ITAT dismissed the tax officer's argument, holding that crypto constitutes property rights under the Income Tax Act.
This ruling is significant for transactions conducted before April 1, 2022, when the government introduced the VDA-specific tax regime, as it ensures consistency in the classification of pre-2022 crypto gains as capital gains.
The ITAT’s decision ensures fair treatment under long-term capital gains laws, reducing the tax burden for early adopters. The ruling derived from a case where an individual purchased Bitcoin in 2015-16 and sold it in 2020-21, arguing that the gains should be treated as long-term capital gains.
The assessing tax officer initially disagreed, contending that cryptos lacked inherent value and could not be classified as property. Since the holding period exceeded three years, the tribunal ruled the profits qualified as long-term capital gains, allowing the taxpayer to claim deductions under existing law.
The tribunal reiterated that taxation ambiguities should favor taxpayers, citing the Supreme Court of India’s principle: “Where two reasonable constructions of a taxing provision are possible, then the construction which favours the assessee must be adopted.”
“The present ruling provides long-term crypto holders with a well-reasoned precedent to challenge and oust unjustified tax demands or scrutiny for the period up to FY 2021,” Hargun Singh, Web3 lawyer and associate at Luthra and Luthra Law Offices India, told Decrypt.
“The ITAT Jodhpur’s decision holding Bitcoin as 'property' under the Income Tax Act is significant for all hodlers, especially if they have booked profits prior to the insertion of the term 'VDA' into the IT Act,” crypto lawyer Dhrupad Das, founding partner at Panda Law, told Decrypt.
For pre-2022 transactions, however, gains are taxed as capital gains, with long-term holdings benefiting from lower tax rates and available deductions. “Some classified their profits under capital gains to avail lower tax rates, while others conservatively reported them under income from other sources, incurring higher taxes,” Singh added.
This ruling ensures consistency, decisively classifying pre-2022 crypto gains as capital gains.