February 1, 2022, shall always be remembered in the Indian history of cryptocurrency. Why? Because while the government was mulling a ban on cryptocurrency last year, this year it made it to the Union Budget and saved the dreams of millions of crypto believers and investors. India has taken a step towards central bank digital currency (CBDC) and shall introduce Digital Rupee. This step was taken to boost the digital economy of the largest economy in the world.
What does this Union Budget of 2022-23 have in store for crypto? Well, it classifies every digital asset such as NFTs, cryptos, etc into a class called “Virtual digital assets”. The budget also lays down a plan to tax these virtual digital assets. But before we get into the Crypto Taxation in India and how it will affect the investors, let us all understand what are Virtual Digital Assets and how will the Digital rupee work?
As the name suggests, digital assets that are not real or physical are called Virtual digital assets. Virtual digital assets do not include digital gold, central bank digital currency (CBDC), or any other traditional digital assets. This term is specifically for cryptos, DeFi, and NFTs.
According to the definition laid down in the Finance bill, any code or information or token (neither an Indian currency nor a foreign currency) generated with the help of cryptographic means or otherwise, providing a digital representation of value exchanged with or without consideration, with an inherent value or functioning as a store of value or a unit of account including its use in any monetary transaction, not only limited to an investment scheme and that can be stored and transferred, or traded electronically. A non-fungible token or any other token of similar nature are all included in the class of virtual digital assets.
1. Crypto –Every native token of a blockchain network, all your ERC 20s, DeFi tokens, altcoins, metaverse tokens and others on which you spend fiat currency to invest in.
2. NFTs – When we say NFTs, these are not the easily available images on the Google domain but the actual digital NFTs that can be bought on the NFT marketplaces through crypto.
According to the Union Budget released on February 1, 2022, the proposed tax on Virtual digital assets is of flat 30 percent with no provision to set off against any other income and no deduction. According to this budget, the recipient of the virtual digital asset as a gift shall be liable for taxation. Apart from this, another declaration that made its way to the Union Budget 2022-23 was the introduction of the Digital rupee.
Additional Read: How to assess the value and worth of NFTs
Our Finance Minister Nirmala Sitharaman also announced that the Reserve Bank of India (RBI) shall also launch its digital rupee in the new financial year. This digital currency shall serve as the central bank digital currency (CBDC). The finance ministry believes that this introduction of CBDC shall provide a significant push to the digital economy and added that it will lead to a more cheaper and efficient currency management system.
The RBI will issue CBDC which is nothing but a legal tender and shall behave the same as the currency issued by the Central Bank. However, it’s all digital. It shall serve as a sovereign currency but in an electronic form appearing as currency in circulation on the balance sheets of the central bank. Wondering if you can exchange your CBDC for equivalent paper money? Well, yes it is exchangeable.
The Indian government has finally taken its bold and clear step towards decentralization. And as Spider man said, “With great power comes great responsibility”. Although the blockchain technology and cryptocurrency lays the power in the hands of the people but to ensure that each one of us carry out our responsibilities, this regulation was needed. Although many see the 1 percent tax deducted at source (TDS) as a masterstroke aiding the government to track every transaction, this clarification for our beloved crypto was long pending. And this one bold move shall push India towards loads of such innovations and better technological advancements.
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