India: Bitcoin is a Taxable Asset, Regulation Under Debate

• Pre-2022 Bitcoin Profits Classified as Capital Gains
• Indian Parliament Discusses Cryptocurrency Regulation
• Global regulation is needed to avoid tax arbitrage

The Income Tax Appellate Tribunal (ITAT) in Jodhpur, India, has ruled that profits made from the sale of cryptocurrencies such as Bitcoin, before The implementation of the Virtual Digital Assets (VDA) regime in 2022 will be treated as capital gains. The decision brings clarity to the taxation of crypto assets in the country, as the Indian parliament debates the need for comprehensive regulations for the sector.

At the time of publication, the price of Bitcoin was quoted at US$106.928, up 0.4% in the last 24 hours.

The case under review involved a taxpayer who acquired Bitcoin in 2015-16 for the equivalent of $6.478 (₹5,05 lakh) and sold it in 2020-21 for approximately $78.806 (₹6,69 crore). The taxpayer argued that the gains should be classified as long-term capital gains as the holding period exceeded three years. Initially, the tax auditor objected, stating that cryptocurrencies could not be considered property due to lack of intrinsic value.

The court rejected the argument, stating that under Section 2(14) of the Income Tax Act, crypto assets fall under the definition of “property of any kind.” Therefore, profits generated before April 2022 are considered capital gains, allowing tax deductions under long-term laws. Dhrupad Das, a lawyer specializing in crypto assets, commented: “The decision of ITAT Jodhpur classifying Bitcoin as ‘property’ is significant, especially for those who earned profits before the amendment that introduced the term VDA in the tax laws.”

Meanwhile, the Indian parliament is intensifying debates on cryptocurrency regulation. In a recent statement to the Lok Sabha, the government stressed that due to the borderless nature of crypto assets, effective regulation requires international cooperation. Officials said that while there are tax measures in place, such as a flat 30% tax rate on crypto assets since 2022 and inclusion under the Prevention of Money Laundering Act (PMLA) since March 2023, a robust regulatory framework is still under development.

BREAKING: 🇮🇳 Crypto regulation discussed in parliament: 🧵

1⃣ Comprehensive Framework: The government is working on a regulatory framework for VDAs but emphasizes the need for international collaboration to address their borderless nature and avoid regulatory arbitration. pic.twitter.com/Njlvw48Urj

— Crypto India (@CryptooIndia) December 16, 2024

The government has stressed the need for policy coordination at a global level, as highlighted during India’s G20 presidency, to prevent regulatory arbitrage and protect investors. With no specific timeline for the introduction of regulations, investors are awaiting clear guidelines to operate in the crypto market safely and efficiently.

The ITAT decision, coupled with parliamentary discussions, signals progress for the sector in India, offering a balance between fair taxation and necessary regulation to keep pace with the growing adoption of cryptocurrencies in the country.