What is a virtual digital asset? and How is it different from digital currency?

admin February 3, 2022
Updated 2022/02/10 at 3:25 PM

In her Budget 2022 address on Tuesday, Finance Minister Nirmala Sitharaman declared a 30% tax on revenue from virtual digital assets. She said that such transactions have increased significantly, and the size and frequency of these transactions have necessitated the creation of a separate tax system.

She went on to say that no deductions for any expenditures or allowances would be permitted when calculating such income, with the exception of the cost of purchase. She also recommended a 1% TDS on payments made in connection with the transfer of virtual digital assets over a certain level.

In summary, the finance minister has suggested a flat 30% tax on digital asset profits, regardless of whether the investor holds the asset for a long or short period of time. Furthermore, any losses incurred by a virtual digital asset investor during the transaction cannot be offset against any other revenue. It has also been recommended that the gifting of virtual digital assets be taxed in the recipient’s hands.

What are virtual digital assets, and what distinguishes them from the digital currency?

Sitharaman indicated to reporters after the budget that a currency may be defined if it is issued by the central bank. “I said that the Reserve Bank will be creating a digital currency, but a currency is only a currency when it is issued by the central bank, regardless of whether it is a crypto.” When questioned about cryptocurrencies, she stated, “Anything outside of that, loosely all of us refer to it as a cryptocurrency, but they are not currencies.”

She explained that the RBI would issue digital money in the next fiscal year, and everything else would be digital assets generated by individuals, with the government taxing the profits earned during the exchanges of such assets at 30%.

The government said in a memorandum clarifying the provisions of the Finance Bill that “virtual digital assets have acquired significant popularity in recent years, and the volume of trade in such digital assets has expanded significantly.” In addition, a market is forming in which payment for the transfer of a virtual digital asset may be made using another virtual digital asset. As a result, the bill proposes a new system to allow for the taxation of such virtual digital assets.

What does the government mean when it talks about virtual digital assets?

According to the government’s explanatory memorandum for the Finance Bill, “to define the term “virtual digital asset,” a new clause (47A) is proposed to be included in Section 2 of the Act, “the government noted in the finance bill’s explanatory memorandum.”to the proposed new clause, a virtual digital asset is defined as any information, code, number, or token (not being Indian currency or any foreign currency), generated through cryptographic means or otherwise, by whatever name, that provides a digital representation of value that 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 underlying data. The term includes non-fungible tokens as well as any other tokens of a similar nature. “

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