Virtual Digital Assets

February 5, 2022

Syllabus: General Studies Paper 3

Context

Finance Minister , in her Budget 2022 speech on Tuesday (February 1), announced a 30 per cent taxon income from virtual digital assets.
As per the minister, the phenomenal rise in such transactions and the magnitude and frequency of these transactions has made it imperative to provide for a specific tax regime.
Additionally, a TDS on payment made in relation to the transfer of virtual digital assets at 1 per cent above a monetary threshold is also proposed.

More on the news

In short, the finance minister has proposed a flat 30 per cent tax on digital asset gains regardless of any long-term or short-term holding by the investor.
Additionally, if a virtual digital asset investor incurs losses during the transaction, it can’t be set off against any other income.
The gifting of virtual digital assets has also been proposed to be taxed in the hands of the recipient.

What are virtual digital assets and how are they different from digital currency?

In her post-budget media interaction, Sitharaman explained that a currency can be defined if it is issued by the central bank.
She clarified that what the RBI issues in the next fiscal will be the digital currency and everything else apart from that are digital assets being created by induviduals and the government will be taxing the profit which are made during transactions of such assets at 30 per cent.

How does the government define virtual digital assets?

To define the term “virtual digital asset”, a new clause (47A) is proposed to be inserted to section 2 of the Act.
As per the proposed new clause, a virtual digital asset is proposed to mean any information or code or number or token (not being Indian currency or any foreign currency), generated through cryptographic means or otherwise, by whatever name called, providing a digital representation of value which is exchanged with or without consideration, with the promise or representation of having inherent value, or 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 and can be transferred, stored or traded electronically.
Non fungible token and; any other token of similar nature are included in the definition.

The Indian Express link

Question- Write a short note on virtual digital assets.