Bitcoin Taxation: This lesser-known rule cut a techie’s tax liability to just ₹33 lakh on ₹6.64 crore in crypto gain

Bitcoin taxation case: An ex-Infosys employee recently won a case against the Income Tax department after the Jodhpur income tax appellate tribunal (ITAT) decided that the cryptocurrency (Bitcoin) sold by the person was a capital asset. 

The ITAT stated that the person should be allowed to pay a lower tax rate (20 per cent) on his profit from the sale and claim ₹4.95 crore as income tax exemption under section 54 F.

Consequently, the individual taxpayer paid a lower tax of ₹33 lakh ( ₹33,60,485) on the gains from the sale. The former Infosys employee bought the Bitcoin for ₹5 lakh and sold it for ₹6.69 crore.

What is Section 54 F?

Section 54F of the Income Tax Act, 1961 provides an exemption from long-term capital gains tax on the sale of any capital asset other than a residential property. This means that if you sell a long-term capital asset, such as shares, stocks, bonds, or gold, and reinvest the proceeds into a new residential property within a specified period, you can claim an exemption on the capital gains earned from the sale.

Why the low tax for the techie

The Jodhpur ITAT came to the conclusion that the ex-Infosys employee was looking at long-term capital gains from his investment. The techie was not regularly engaged in purchasing or selling shares or cryptocurrency. “He is not regularly engaged in the purchase or sale of shares or cryptocurrency. His intention appears to be to hold for long-term capital gains, which is further supported by the fact that he made an investment in cryptocurrency during FY 2015-16, which was sold in FY 2020-21,” noted Jodhpur ITAT.

"The gain from the sale of cryptocurrency was then reinvested in the purchase of a house. This demonstrates that the assessee's intention in investing in cryptocurrency was to hold it and earn long-term capital gains," stated the Jodhpur ITAT, as per reports.

The Jodhpur ITAT ruled that cryptocurrencies such as Bitcoin and Ethereum are considered capital assets, meaning that profits from their sale are classified as capital gains rather than income from other sources. This ruling applies to transactions conducted before April 1, 2022, when the government introduced specific tax regulations for cryptocurrencies.