ITAT: Gains From Cryptocurrencies to be Treated as Capital Gains

Clearing the confusion around taxation of crypto currencies, Income Tax Appellate Tribunal (ITAT) has ruled that cryptocurrencies are capital assets and profits incurred via their sale prior to 2022 rules will be considered capital gains.

Currently, the law recognises these assets as virtual digital assets, which are treated as capital assets. Sandeep Jhunjhunwala, tax partner (M&A) at Nangia Andersen said, “It not only recognises Bitcoin as a capital asset but also provides clarity on how such transactions should be treated for the period before the introduction of the formal VDA (virtual digital asset) regime in 2022.”

Following the government's latest notification, income from the sale or transfer of virtual digital assets from April 1, 2022 onwards is taxable at a flat rate of 30%, plus surcharge and cess.

The ITAT bench held that cryptocurrency is “an asset and therefore gain on sale of cryptocurrency has to be taxed under the head 'capital gain' and not under the head 'income from other sources' before the lawmaker made the specific provision in the (Income Tax) Act.”

The bench consisted of S Seethalakshmi and Rathod Kamlesh Jayantbhai.

As sale from cryptocurrencies will be considered long term gains, the tribunal also urged the assessment officer in facilitating the person to claim deduction benefits mentioned in the law.

Notably, ITAT was hearing a case where the person brought cryptos worth ₹5.05 lakh in 2015-16 and sold for ₹6.69 crore in 2020-21. The person argued that such gains should be treated as capital assets because the transaction took place before virtual digital assets came into force.