Virtual Digital Assets

Editorial Analysis for UPSC - Submarine Cables

Virtual Digital Assets



  • Finance Minister Nirmala Sitharaman, in her Budget 2022 speech on Tuesday (February 1), announced a 30 per cent tax on income from virtual digital assets.
  • She said that 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.


How is it different from Digital Currency:

  • The Finance Minister explained that a currency can be defined if it is issued by the central bank. “I said the Reserve Bank will be issuing a digital currency, a currency is a currency only when it is issued by the central bank even if it is a crypto.
  • But anything which is outside of that loosely all of us refer it to be cryptocurrency but they are not currencies.
  • The announcement of the digital rupee confirms that India will now join the list of countries that are experimenting with digital currencies.
  • The Reserve Bank of India (RBI) will introduce a new digital rupee in the upcoming financial year.
  • The central bank digital currency (CBDC) will be a legal payment tender, and on par with the rupee as we have known it in the paper version all along.


How does the government define 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.”


Way Forward:


  • The Finance Minister 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 individuals and the government will be taxing the profit which are made during transactions of such assets at 30 per cent.
  • In the memorandum explaining the provisions in the Finance Bill, the government said that “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.
  • Accordingly, a new scheme to provide for taxation of such virtual digital assets has been proposed in the Bill.”

Source: THE HINDU.