Cryptocurrencies to be taxed as capital gains: Relief for pre-FY23 earnings
The Income Tax Appellate Tribunal (ITAT) in Jodhpur has clarified how cryptocurrency profits should be taxed in its ruling in Tuesday.
It ruled that cryptocurrencies, like Bitcoin and Ethereum, are capital assets, meaning profits from their sale are to be treated as capital gains instead of income from other sources. This decision applies to transactions made before April 1, 2022, when the government introduced specific cryptocurrency tax rules.
TAXATION BEFORE AND AFTER 2022
Pre-2022 transactions: Before the Virtual Digital Assets (VDA) regulations came into effect in 2022, profits from crypto sales were categorised as capital gains, much like profits from stocks or real estate. Investors holding cryptocurrencies for more than three years could classify their gains as long-term capital gains, often resulting in lower taxes. The ITAT’s ruling confirms this treatment and provides clarity for those who sold cryptocurrencies during this period.
Post-2022 transactions: Starting April 1, 2022, the government imposed a flat 30% tax on all cryptocurrency profits, regardless of the holding period. Unlike earlier rules, no deductions or exemptions are allowed under this regime. Whether you hold your crypto for a few months or several years, the same tax rate applies.
WHAT THIS MEANS FOR CRYPTO INVESTORS
The ITAT ruling offers clarity and a fair approach for crypto investors:
Profits before 2022: Must be reported as capital gains. Long-term holdings (over three years) qualify for reduced tax rates under long-term capital gains rules.
Profits after 2022: Will be taxed at a fixed rate of 30%, with no deductions.
Sandeep Jhunjhunwala, a tax expert, highlighted that this ruling not only recognises cryptocurrencies as capital assets but also provides much-needed clarity for transactions before 2022.
Investors must maintain detailed records of all transactions, including purchase and sale dates, and profit calculations, to meet tax compliance requirements.
This decision simplifies cryptocurrency taxation and ensures investors treat their profits correctly based on when the transactions occurred.