How Pre-2022 Cryptocurrency Gains Are Now Classified for Tax Purposes

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• ITAT ruled pre-2022 cryptocurrency gains as capital assets, subjecting profits to capital gains tax with applicable deductions.
• Profits from cryptocurrency sales before April 2022 qualify for long-term capital gains if held for over three years.
• Post-April 2022, cryptocurrency gains face a flat 30% tax rate without deductions, under new Virtual Digital Asset regulations.

The Income Tax Appellate Tribunal (ITAT) in Jodhpur has ruled that profits from cryptocurrency sales conducted before the 2022 Virtual Digital Assets (VDA) regulations should be classified as capital gains. This decision clarifies the tax treatment for cryptocurrency investors in India and distinguishes these gains from “income from other sources.”

The ruling came from a case involving a taxpayer who purchased cryptocurrencies worth Rs 5.05 lakh in the financial year 2015-16 and sold them in 2020-21 for Rs 6.69 crore. ITAT determined that the holding period of over three years qualified the profits as long-term capital gains, which are taxed at lower rates compared to short-term gains or general income tax rates.

The tribunal instructed tax authorities to allow the taxpayer to claim deductions available under long-term capital gains provisions. This enables eligible investors to reduce their taxable income by applying lawful exemptions, lowering their overall tax liability.

The ruling establishes that profits from cryptocurrency transactions conducted before April 1, 2022, are subject to capital gains tax treatment. After this date, the government introduced a flat 30% tax rate on cryptocurrency gains under the VDA framework, with no deductions or exemptions allowed.

Before this clarification, the absence of specific guidelines caused uncertainty regarding the classification of cryptocurrency profits. Investors faced ambiguity on whether such earnings would fall under capital gains or other income categories, which often carry higher tax burdens.

This decision aligns cryptocurrency holdings with traditional capital assets, ensuring that pre-2022 gains are taxed under capital gains provisions. By removing ambiguity, the ITAT ruling allows Indian investors to comply with tax laws more confidently. It also differentiates older cryptocurrency transactions from those falling under the stricter regulations implemented in 2022.

For investors, the outcome simplifies the reporting of cryptocurrency gains earned before the regulatory shift, establishing a clear framework for taxation.