Blockchain Technology: Prospects and Challenges

What are Virtual Digital Assets?

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Virtual Digital Assets

Mains level : Taxing crypto assets

Finance Minister in her Budget 2022 announced a 30 per cent tax on income from virtual digital assets (particularly aiming at Cryptocurrencies).

What are Virtual Digital Assets?

  • To define the term “virtual digital asset”, a new clause (47A) is proposed to be inserted into section 2 of the Act.
  • A virtual digital asset is proposed to mean any information or code or number or token (not being Indian currency or any foreign currency):
  1. Generated through cryptographic means or otherwise
  2. Providing a digital representation of value that is exchanged with or without consideration with the promise or representation of having inherent value
  3. Functions as a store of value or a unit of account and includes its use in any financial transaction or investment, but not limited to, investment schemes
  4. Can be transferred, stored, or traded electronically.
  • Non-fungible token (NFT) and; any other token of similar nature are included in the definition.

Why tax them?

  • Popularity: Virtual digital assets have gained tremendous popularity in recent times and the volumes of trading in such digital assets have increased substantially.
  • Growing market: Further, a market is emerging where payment for the transfer of a virtual digital asset can be made through another such asset.
  • Increased transactions: There has been a phenomenal rise in such transactions and the magnitude and frequency of these transactions have made it imperative to provide for a specific tax regime.
  • Prevalence of gifting: The gifting of virtual digital assets is also a popular mode of exchange.

Key takeaways from the FM’s speech

  • The bill provides for the definition of virtual digital assets which is wide enough to cover emerging digital assets including NFT, assets in metaverse, cryptocurrencies, etc.
  • This recognition of digital assets under income tax is NOT akin to granting legal status.

 

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