With reference to Section 2(14) of the Income-tax, Act 1961, cryptocurrency could be deemed as capital assets if they are purchased for the purpose of investments by the taxpayers and any gain arising on transfer of such cryptocurrency shall be taxable as capital gains.

Its further classification into short-term or long-term capital gain would depend upon the period of holding of cryptocurrency. If they are held for more than 36 months from the date of purchase, it will be considered as long-term capital asset, otherwise a short-term capital asset. Short-term capital gains are taxable as per the slab rates applicable to a taxpayer. And long-term capital gains are taxed at the flat rate of 20% with the benefit of indexation.

However, if the transactions in cryptocurrency are substantial and frequent, it could be held that the taxpayer is trading in cryptocurrency. In this case, income from sale of cryptocurrency would be taxable as business income.