Crypto Gains Before 2022 : ITAT Clears the Fog on Tax Treatment
The Jodhpur ITAT, in Raunaq Prakash Jain vs. ITO (dt. 28-11-2024), has delivered a landmark judgment on taxing cryptocurrency gains before April 1, 2022. With no specific provisions for Virtual Digital Assets (VDAs) in the Income Tax Act at the time, the Tribunal provided much needed clarity.
The case involved a salaried taxpayer who had purchased Bitcoin in FY 2015-16 for ₹5.05 lakh and sold it in FY 2020-21 for ₹6.69 crore. He reported the gains as long-term capital gains (LTCG) and claimed an exemption under Section 54F by reinvesting the proceeds in a residential property.
However, the Assessing Officer (AO) rejected his claim, arguing that Bitcoin did not qualify as a “capital asset” under Section 2(14) of the Income Tax Act. The AO taxed the gains as “income from other sources” and disallowed the Section 54F exemption. The ITAT overturned this view, delivering a ruling that provides clarity for crypto transactions during the pre-2022 regulatory gap.
Key Takeaways from the Judgment:
1.Cryptocurrency is a Capital Asset
• The Tribunal held that Bitcoin qualifies as “property of any kind” under Section 2(14) and is therefore a capital asset unless specifically excluded.
2. Taxable Under Capital Gains
• Gains from Bitcoin sales prior to FY 2022-23 are taxable under the “Capital Gains” head and not as “income from other sources.”
3. Finance Act 2022 is Prospective
• The new regime under Section 115BBH, taxing VDAs at 30%, applies only from FY 2022-23. Transactions up to March 31, 2022, would not attract the provisions of section 115BBH.
4. Investment Intent Matters
• The ITAT emphasized long-term holding as an indicator of investment intent, supporting capital gains tax treatment.
5. Exemption Under Section 54F Allowed
•Reinvesting gains in specified assets makes such gains eligible for exemption under Section 54F.
This judgment is particularly significant for investors navigating the pre-2022 regulatory vacuum and brings clarity to how cryptocurrency transactions should be treated under the law. For transactions before April 2022, the ITAT’s judgment affirms that cryptocurrencies can be taxed as capital gains if held as investments. This clarity can help taxpayers plan better and claim benefits where applicable.
The copy of the order is as under:
