Pre-FY23 Crypto Gains: ITAT Clarifies Tax Exemption Rules

Introduction to the ITAT Ruling on Crypto Gains

In a significant decision, the Income Tax Appellate Tribunal (ITAT) clarified that gains from cryptocurrency transactions made before FY 2022–2023 are not subject to the 30% tax introduced under Section 115BBH of the Income Tax Act. This ruling brings much-needed relief to Indian investors.

Understanding the Role of ITAT

The Income Tax Appellate Tribunal (ITAT) is a quasi-judicial authority that resolves disputes related to direct taxes. It is the second appellate forum after the Commissioner of Income Tax (Appeals).

Recognizing the Crypto Gains Context in India

Before FY 2022–2023, there were no specific tax regulations for cryptocurrency gains, which caused confusion among investors.

From April 1, 2022, under Section 115BBH, a 30% tax was imposed on virtual digital assets (VDAs), including cryptocurrencies and NFTs.

Important Points of the ITAT Judgment: Crypto Gains Before FY23

• Exemption from 30% Tax: The ITAT ruled that gains from cryptocurrency transactions prior to FY 2022–2023 cannot be subject to the new 30% tax.
• Classification of Crypto Gains:
  • Capital Gains: If held as an investment
  • Business Income: If frequent trading occurred
• Absence of Specific Laws: Gains were to be taxed under the general provisions of the Income Tax Act as capital gains or business income.

Implications of the ITAT Ruling on Cryptocurrency Investors

The ruling ensures that the 30% tax cannot be applied retroactively, benefiting investors by:

• Allowing tax exemptions or regular taxation based on previous laws.
• Providing clarity for pending assessments.

How to Report Cryptocurrency Gains Made Before FY23

Investors should report gains under the general Income Tax Act provisions:

Capital Gains:

• Long-term capital gains (held >36 months): 20% tax with indexation.
• Short-term capital gains: Taxed at slab rates.

Business Income:

• Profits taxed at slab rates.
• Deduction allowed for transaction fees and related expenses.

Expert Insights on the ITAT Judgment

Tax experts believe this decision resolves ambiguity, ensuring that the 30% tax cannot be applied retrospectively. Accurate record-keeping of transactions is crucial for compliance.

FAQs Regarding the ITAT Ruling on Crypto Gains

Q: Does the ITAT ruling apply to gains before FY23?

A: Yes, it clarifies that the 30% tax does not apply retroactively.

Q: How are gains before FY23 taxed?

A: They are taxed as capital gains or business income under the old rules.

Conclusion: Key Takeaways for Indian Crypto Investors

The ITAT ruling on cryptocurrency gains ensures that no retrospective taxation occurs. Investors must classify and report their pre-FY23 gains accurately as per general tax provisions.

For compliance, consult a tax expert and keep detailed records of all crypto transactions.

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