A Jodhpur bench of the Income Tax Appellate Tribunal (ITAT) recently ordered that profits on cryptocurrencies sold before 2022 will be treated as capital gains and not as income from other sources.
This is believed to be of great importance as capital gains (both short-term and long-term) on cryptocurrencies sold after April 1, 2022 will be taxed at 30 percent.
By treating long-term capital gains (taxed at 20 percent), investors can save significantly. In this case, ITAT was involved in a case involving an individual who purchased cryptocurrencies worth ₹5.05 lakh in 2015-16 and sold them in 2020-21 for ₹6.69 crore, making a significant profit.
This ruling is seen as good news for taxpayers who sold their cryptocurrencies before 2022 and could therefore be spared from paying 30 percent income tax on the profits.
Expert opinion
“This judgment is beneficial for taxpayers as it will not only bring parity in how a crypto transaction should be taxed, but also enable taxpayers to claim a 54F capital gains deduction,” said CA Pratibha Goyal, Partner, PD Gupta & Company, a Delhi based CA firm.
However, as it stands, this means that taxpayers do not have to pay 30 percent tax on their profits when they hold these assets for 36 months or more.
Case I: Someone bought cryptos ₹10 lakh in 2020 and sold them in 2021 for ₹15 lakhs. The tax is therefore calculated on the basis of capital gains and not on income from ‘other sources’.
Case II: Someone bought cryptos for it ₹10 lakh in 2022 and sold them in 2024 for ₹15 lakhs. This will be subject to a 30 percent tax, as the sale in this case took place after the new legislation on virtual digital currencies (VDAs) came into effect.
Case III: Someone bought bitcoins worth ₹10 lakh in 2020 and sold them for ₹15 lakh in May 2022. This will also attract 30 percent tax as the sale took place after the new rule came into effect.
However, some experts also believe that this ruling could be challenged as it could set a precedent for future orders.
“The Hon’ble Tribunal has relied on the orders of the subordinate tax authorities to direct that income from sale of crypto assets/VDA before April 2022 should be taxed as capital gains. Also, factors like volume and frequency of transactions, disclosure in books, etc. need to be evaluated to decide on the taxability of income from the sale of such VDAs. It is interesting to note that the Finance Act 2022 has increased the tax on income from the sale of VDA to 30 percent, without classifying it as income from corporate profits or capital gains or other sources. There is therefore a possibility that the tax authorities will challenge this ruling. ” says Bhavin Shah, Partner, Tax and Regulatory Services, MSKB & Associates LLP.
