ITAT on Bitcoin: In a landmark ruling, the Income Tax Appellate Tribunal (ITAT) in Jodhpur has clarified the tax treatment of cryptocurrencies in India. The tribunal ruled that profits from the sale of cryptocurrencies should be considered as capital gains rather than income. This decision is especially significant for transactions that took place before the introduction of the Virtual Digital Asset (VDA) tax regime in 2022.
According to Entrepreneur, with this ruling, ITAT has classified cryptocurrencies, including Bitcoin, as capital assets, which clears up the confusion surrounding their taxation. This decision will benefit investors who have held their crypto assets for over three years, as they will now be eligible for long-term capital gains (LTCG) tax rates, which typically come with deductions or exemptions and result in lower tax liabilities.
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This judgment provides relief to individuals who sold cryptocurrencies prior to 2022, as they will now be subject to more favorable tax treatment.
“The ITAT judgment will not hold good for the sale/transfer of cryptos today. The Tribunal’s decision pertains to AY 2021-22 and is applicable only to transactions that occurred prior to the Finance Act 2022 as virtual digital assets (VDAs) were not defined in the law during that period,” says CA (Dr.) Suresh Surana, according to Upstox.
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The Finance Act 2022 introduced Section 115BBH, which specifically defined Virtual Digital Assets (VDAs) and implemented a flat 30% tax on proceeds from the sale of cryptocurrencies. Under this provision, no deductions, other than the cost of acquisition, are allowed, and losses from one VDA cannot be set off against gains from another VDA.
What was the case before ITAT?
In this case, Raunaq Prakash Jain (the assessee) had purchased Bitcoins worth ₹5.05 lakh and sold them after more than 36 months in Assessment Year (AY) 2020-21 for ₹6.69 crore. While filing his taxes, Jain treated the income from this sale as Long-Term Capital Gains (LTCG).
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However, the Income Tax Assessing Officer and the First Appellate Authority (FAA) rejected this classification, stating that Bitcoin was not defined as a capital asset under the Income Tax Act. In contrast, the ITAT accepted Jain’s claim and ruled in his favor.
Do ITAT orders qualify as tax rules?
No, ITAT orders are not tax rules but decisions specific to the cases brought before the Tribunal. Experts note that these orders are not binding on other taxpayers or cases, and they may be subject to appeal before the High Court and the Supreme Court.
As Pallav Pradyumn Narang, Partner at CNK, a Delhi-based law firm, explains, “ITAT orders are binding on lower authorities within the same jurisdiction but are not binding nationwide unless upheld by higher courts.” Income tax rules in India are framed by the Central Board of Direct Taxes (CBDT) and governed by the Income Tax Act.
“While ITAT rulings do not automatically become tax rules, they hold persuasive value for similar cases, especially when there is no contrary decision by a higher court,” adds Narang.
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Who will benefit from the ITAT order?
The ITAT decision may benefit only those taxpayers facing a situation similar to Jain’s case. As Kunal Savani, Partner at Cyril Amarchand Mangaldas, notes, “This decision is specific to the facts of the case and will only be useful for taxpayers with similar fact patterns. With the introduction of specific tax provisions for VDAs applicable to transactions post-2022, the benefits associated with classification as capital assets are no longer available.”
However, the order could serve as a precedent for similar cases. “This judgment certainly will be a precedent for income tax cases, and a transfer of cryptocurrencies up to AY 2023-24 cannot be subjected to income from other sources given this judgment,” says Kishore Kunal, Advocate on Record, Supreme Court of India.
