Digital Assets are electronic files that remain as information on a digital storage device rather than a computer system. On the other hand, handmade goods can become digital assets if scanned and uploaded to a computer; for example, a painting or handwritten notes can become digital assets if scanned and posted to a computer.
Unlike paper document filing, various digital assets must be kept, with each asset type having a specific purpose.
Any single file is a digital asset if it has three crucial elements. A digital asset must include:
- Be a digital file held by a person or corporation,
- Add value to the individual or corporation, and
- Make oneself findable and accessible (usually with metadata)
VIRTUAL DIGITAL ASSETS
Virtual Digital Assets are digital assets that are not real or tangible. Non-fungible tokens (NFTs), cryptos, and other virtual assets are subsets of all digital assets exchanged on a Blockchain. It encompasses both Cryptocurrency and NFTs. The requirements for identifying Bitcoins or similar apps as virtual digital assets have been purposefully broadened.
To put it simply, Virtual Digital Assets refer to cryptocurrencies, DeFi (decentralized finance), and non-fungible tokens (NFTs). At first glance, it appears to exclude digital gold, central bank digital currency (CBDC), or any other traditional digital assets and is thus intended primarily to tax cryptocurrencies.
What is the rationale for taxing virtual digital assets?
Popularity and increased sales
Virtual digital assets have grown in popularity in recent years, and the volume of trade in such digital assets has expanded significantly.
As a result, a market has emerged in which payment for the transfer of a virtual digital asset can be made using another such support. A specific tax structure is necessary due to the size and frequency of these transactions.
Nowadays, gifting virtual digital goods is also a widespread means of trade.
What distinguishes Virtual Digital Assets from Digital Currency?
The monetary unit may only be characterized as a medium of exchange if the central bank issues it—for example, rupee, dollar, etc. Be a result, crypto will only be referred to as a currency after a central bank issues it.
The RBI will issue the digital currency in the next fiscal year, which begins on April 1. The “digital rupee” is the name given to this digital currency.
Virtual Digital Evaluations
Individuals create anything generated outside of the central bank as virtual digital assets. People commonly refer to these digital assets as Cryptocurrency, although they are not. Consider Bitcoin.
- Because there is no issuer, these private virtual currencies do not reflect any person’s debt or obligations. They aren’t money, and they indeed aren’t a currency.
- Non-fungible tokens, or NFTs, are cryptographic assets on a Blockchain having unique identification codes and information that distinguishes them from one another. NFTs can also represent people’s identification, property rights, etc.
- Unlike NFTs, fungible tokens, like cryptocurrencies, are typically similar to one another and may thus be utilized as a medium for economic transactions.
Recent rules governing Virtual Digital Assets
The government approved specific restrictions for Virtual Digital Assets in the 2022 budget, which will take effect on April 1, 2023.
- The government has announced that earnings produced during trades of such privately developed or virtual digital assets will be taxed at 30%.
- This will be done regardless of whether the investor has a long-term or short-term stake.
- Except for the cost of purchase, no deduction on expenditure or allowance shall be permitted while computing such income.
- TDS will be levied at a rate of 1% on payments for the transfer of crypto assets above a specified threshold.
- Losses incurred by a virtual digital asset investor during a transaction cannot be offset against other income.
- The gifting of virtual digital assets has also been recommended to be taxed in the recipient’s hands.
The RBI has vehemently opposed private cryptocurrencies for a long time, citing the significant consequences for national security and financial stability. The government’s latest action recognizes Cryptocurrency as a valid asset class and Cryptocurrency trading as a lawful business. However, the increased tax rate suggests that the RBI wants to decrease the attraction of this virtual digital asset. As a result, the statement reasonably tackles the uncertainties and worries about cryptocurrencies’ legal, regulatory, and tax status. A well-regulated crypto industry will pave the way for a climate conducive to innovation.