The Income Tax Appellate Tribunal (ITAT) in Jodhpur, India has issued its ruling on how cryptocurrency transactions made prior to financial year 2022-2023 should be taxed. Their profits should be considered capital gains.
Clarity on Crypto Taxation Before 2022 Provided by ITAT
This pivotal ruling brings much-needed clarity to India’s digital asset landscape by establishing that cryptocurrencies like Bitcoin, Ethereum and others were considered capital assets prior to April 1, 2022 and therefore any profits realized from selling these digital assets before this date are taxed as capital gains rather than income from other sources.
Current tax regulations on virtual digital assets, which took effect April 1, 2022, include a 30% tax rate without the ability to offset losses against gains and 1% TDS on every transaction. With ITAT’s decision however, investors who invested early will see more favorable taxes applied retroactively with transactions made before April 1 being subject to 15% short-term capital gains tax and 10% long-term gains tax rates respectively.
The tribunal considered this issue when hearing a case concerning an individual’s substantial profits from Bitcoin trading that they bought during 2015-16 and sold during 2020-21. Although tax officers argued against classification as property due to digital assets’ lack of intrinsic value, the ITAT rejected their argument, concluding that cryptocurrency satisfied Section 2(14) of the Income Tax Act definition of capital asset.
The Regulatory Landscape for Digital Assets in India
India may be at the forefront of global crypto adoption, yet its regulatory environment still does not support digital assets as efficiently. This has caused several crypto businesses to relocate operations elsewhere such as UAE or Singapore for greater regulatory support.
Last year’s high cryptocurrency tax rates have come under intense criticism, prompting speculation they may stunt its development. To address this concern, ongoing discussions between industry stakeholders aim to find more balanced approaches to cryptocurrency regulation in India.
