Clarification on Crypto Taxation Before FY 2022-2023 by Jodhpur’s ITAT
ITAT’s Significant Ruling on Crypto Taxation Pre-2022
The Income Tax Appellate Tribunal (ITAT) in Jodhpur, India, has delivered a decisive verdict concerning the taxation of cryptocurrency transactions executed prior to the financial year 2022-2023. According to this ruling, any profits derived from such crypto dealings will be categorized as capital gains.
This landmark decision is pivotal for India’s burgeoning digital assets ecosystem. The ITAT has clarified that cryptocurrencies, including Bitcoin (BTC), Ethereum (ETH), and others, were considered capital assets until March 31, 2022. Therefore, any financial gains from their sale during this timeframe should be classified as capital gains instead of income from alternative sources.
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India’s existing virtual assets taxation framework, which began on April 1, 2022, mandates a uniform 30% tax on all crypto gains without permitting taxpayers to counterbalance losses with gains. Additionally, a 1% tax deducted at source (TDS) is levied on every crypto transaction. Nonetheless, ITAT’s recent ruling provides a degree of relief to early adopters in India, as they will be subject to a lower tax rate compared to the current flat 30% rate. Specifically, before April 1, 2022, short-term capital gains were taxed at 15%, while long-term capital gains were taxed at 10%.
The ITAT’s decision emerged during a case involving an individual who had purchased Bitcoin valued at $6,478 in FY 2015-16 and sold it for $78,803 in FY 2020-21. The individual maintained that the proceeds should be taxed as long-term capital gains since the asset was held for over three years. However, the tax officer argued against this, suggesting that digital assets, lacking intrinsic value, could not be deemed as property.
In response, the ITAT refuted the tax officer’s stance, asserting that under Section 2(14) of the Income Tax Act, cryptocurrency qualifies as property. The tribunal elucidated that “property of any kind held by an assessee,” including a right or claim over an asset, fulfills the definition of a capital asset.
The Regulatory Landscape of Digital Assets in India
India, despite having one of the highest crypto adoption rates globally, continues to face challenges in establishing a supportive regulatory environment for digital assets. Consequently, many virtual asset enterprises have relocated their headquarters to more crypto-friendly jurisdictions, such as the UAE or Singapore.
The current high tax regime in India, imposing a 30% tax on gains and a 1% TDS on transactions, has been met with widespread criticism. The former CEO of WazirX, a prominent digital assets exchange, forecasted that the existing tax structure would likely persist for at least two more years before undergoing substantial changes.
To address these issues, the Indian government is exploring consultations with industry experts to develop a balanced regulatory framework for cryptocurrencies. As of the latest update, Bitcoin is trading at $108,248, reflecting a 2.5% increase over the past 24 hours.
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