The Jodhpur Income Tax Appellate Tribunal (ITAT) has ruled gains from the sale of bitcoin before April 1, 2022, are taxable as capital gains and eligible for exemption under Section 54F of the Income Tax Act.

The tribunal’s decision came in response to an appeal by an assessee who had declared ₹1.74 crore in total income for AY 2021-22, including long-term capital gains from the sale of bitcoin.

The assessee purchased bitcoin for ₹5.05 lakh in 2015-16 and sold it for ₹6.69 crore in 2020-21, claiming an indexed cost of ₹5.73 lakh and reporting LTCG of ₹1.66 crore.

The ITAT clarified that while cryptocurrencies such as bitcoin are not classified as "currency," they can still qualify as capital assets under Section 2(14) of the Income Tax Act.

The ruling rejected the assessment officer's contention that crypto-currency should not be treated as a capital asset. The ITAT said Finance Act, 2022, introduced virtual digital assets (VDAs) as a formal classification effective April 1, 2022, but did not alter their fundamental nature as capital assets.

The tribunal highlighted that Section 45(1) mandates that profits from the transfer of capital assets be taxed under the capital gains head. It further noted that the assessee’s profile and investment pattern suggested an intention to hold bitcoin for long-term capital appreciation, rather than regular trading activity.

Sandeep Jhunjhunwala, M&A Tax Partner at Nangia Andersen, said: “This ruling could be a linchpin for crypto investors who declared gains before April 1, 2022, when the formal tax regime for VDAs was introduced. The decision provides clarity for the pre-2022 period, while also aligning with the classification of VDAs under ‘Capital Gains’ in the current tax regime.”

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