Recently, a 30 per cent tax on income from virtual digital assets was announced in Union Budget 2022.
About Virtual Digital Assets?
- In the explanatory memorandum of the Finance Bill, the government stated, “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.”
- In simple words, it basically means cryptocurrencies, DeFi (decentralised finance) and non-fungible tokens (NFTs). Prima facie, this excludes digital gold, central bank digital currency (CBDC) or any other traditional digital assets, and hence aimed at specifically taxing cryptocurrencies.
Need of taxation to Virtual Digital Assets
- Virtual digital assets have gained tremendous popularity in recent times and the volumes of trading in such digital assets has increased substantially.
- Further, a market is emerging where payment for the transfer of a virtual digital asset can be made through another such asset.
- Gift of virtual digital asset is also proposed to be taxed in the hands of the recipient.
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