How a former Infosys techie turned a ₹5 lakh Bitcoin bet into ₹33 lakh in tax savings

An ex-Infosys employee successfully won a pivotal case against the Income Tax Department after the Jodhpur Income Tax Appellate Tribunal (ITAT) classified Bitcoin as a capital asset. 

This ruling not only allowed the former techie to pay a lower tax rate but also claim a ₹4.95 crore exemption under Section 54F of the Income Tax Act.

How much tax do I have to pay? Calculate now

The case centered around a Bengaluru-based taxpayer who had invested ₹5 lakh in Bitcoin in FY 2015-16, funded by his salary from Infosys. 

Five years later, in FY 2020-21, he sold the cryptocurrency for ₹6.69 crore and reinvested the gains to purchase a house. However, the Income Tax Department issued a notice, arguing that the gains should be taxed at 30% under the virtual digital asset (VDA) tax regime introduced in 2022.

The ITAT, after reviewing the facts, ruled in favor of the taxpayer, stating that the Bitcoin transaction was conducted before April 1, 2022, when cryptocurrencies were not explicitly defined as VDAs. 

Instead, the tribunal recognized Bitcoin as a capital asset, allowing the gains to be taxed as long-term capital gains (LTCG) at a reduced rate of 20%.

“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,” the ITAT noted.

Consequently, the taxpayer was taxed ₹33.6 lakh on the net LTCG of ₹1.68 crore after deductions, including ₹4.95 crore reinvested under Section 54F.

This landmark ruling underscores the legal nuances of cryptocurrency taxation in India. Transactions before April 1, 2022, are classified under the pre-existing framework, allowing cryptocurrencies to be treated as capital assets rather than digital assets. Tax experts believe this decision sets a significant precedent for similar cases, especially regarding gains reinvested into residential properties.