Profits from cryptocurrency sales should be classified as capital gains rather than income from other sources, the Income Tax Appellate Tribunal (ITAT) said during a landmark ruling in Jodhpur. Reportedly, the decision acknowledges cryptocurrencies as capital assets while impacting how gains from digital currency sales are taxed, especially for transactions before the introduction of specific regulations for Virtual Digital Assets (VDAs) in 2022.
Before the ruling, there was no directional clarity on whether profits from crypto should be treated as capital gains or under the head of "income from other sources." However, the ITAT ruling clarifies the treatment of digital curries in India, meaning rather than at higher income tax rates, the profits from the sale of cryptocurrencies will be taxed as capital gains. The ruling applies to transactions prior to 2022.
Regarding the case:
Reportedly, ITAT was hearing a case involving a person who had bought cryptocurrencies worth Rs 5.05 lakh during 2015-16 and earned a massive profit of Rs 6.69 crore after selling them in 2020-21.
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ITAT claimed the profit must be considered long-term capital gains as the cryptocurrency was under the person's possession for over three years. Usually, short-term capital gains have higher tax rates than long-term capital gains.
Moreover, the ITAT has ordered the tax officer to grant the person the deduction benefits applicable under the long-term capital gains law, meaning the taxpayer has to pay a lesser amount as tax.
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