EN 
As the world witnesses a transition to Web 3.0 technology, blockchain-based assets are the assets of the future. The government introduced the concept of virtual digital assets representing the class of digital assets that are primarily based on blockchain technology. It includes cryptocurrencies, Non-Fungible Tokens (NFTs), etc.
The Finance Bill, 2022 created a buzz among the public by introducing various provisions addressing virtual digital assets. These were followed by certain amendments that were carried out in the bill. However, before jumping to the provisions, let’s understand what are virtual digital assets and their inclusions into the same.
The meaning of virtual digital assets is introduced by inserting a definition under section 2(47A) of the Income Tax Act, 1961.
In layman’s language, virtual digital assets are assets in electronic form that are generated through cryptographic means. Blockchain technology is the primary medium through which they are created and stored. Let’s understand what is blockchain and examples of virtual digital assets:
Non-Fungible Tokens: Non-fungible tokens, popularly known as NFTs, include any digital art, text, video, images, etc. brought and sold in the digital world. This also includes in-game items as well as virtual real estate.
Cryptocurrency: Cryptocurrency is the virtual currency through which you can transact in the virtual world. It is an entirely decentralised non-tangible form of currency stored on public ledgers in the blockchain. Some of the most common cryptocurrencies include Bitcoins, Ethereum, etc.
One of the key concerns that revolved around virtual digital assets is that they were unregulated. Therefore, in a bid to track the transactions associated with VDAs, the Government of India introduced various provisions for virtual digital assets in Budget 2022. Following are the key provisions of Finance Bill 2022 including the amendments that were proposed thereafter in the bill:
1) Income Tax: The Government proposed the insertion of Section 115BBG under the income tax act. The section states the following:
2) TDS: The Finance Bill, 2022 proposed the insertion of Section 194S that mandates TDS on virtual digital asset transactions. As per Section 194S:
However, except for Section 194-O, the deduction and collection of tax can be made under any other section simultaneously with section 194S. For instance, if a person receives contract income (liable to TDS) and the consideration is paid by way of Bitcoin, then tax shall be deducted under Section 194C as well as 194S.
The following persons are considered as ‘specified persons’:
3) Gifts: Gifting of virtual digital assets have also been covered under the income tax act. The definition of the property has been amended to include virtual digital assets. Therefore, all the provisions governing taxation on gifts that were applicable to the property as per the definition given under section 56 (i.e., movable properties) shall apply in relation to the VDAs.
[The above income tax, TDS, and gifting provisions in relation to the VDAs will become applicable from the FY 2022-23.]
The Government of India is also drafting the Cryptocurrency Bill that will become the principal law for governing the transactions associated with virtual digital assets. This comes in a bid to regulate crypto and related transactions. Also, quoting PAN card numbers has become mandatory for opening an account with the crypto exchange. It can be anticipated that as the world adopts Web 3.0, many new fundamental changes will be adopted in laws to regulate and govern these transactions.
In case of any queries, please feel free to contact ASC Group.
End Notes
As per Section 2(47A) of the Income Tax Act, 1961,
“Virtual digital asset” means––
a) any information or code or number or token (not being Indian currency or foreign currency), generated through cryptographic means or otherwise, by whatever name called, providing a digital representation of value 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 including its use in any financial transaction or investment, but not limited to investment scheme; and can be transferred, stored or traded electronically;
b) a non-fungible token or any other token of similar nature, by whatever name called;
c) any other digital asset, as the Central Government, may, by notification in the Official Gazette specify:
Provided that the Central Government may, by notification in the Official Gazette, exclude any digital asset from the definition of the virtual digital asset subject to such conditions as may be specified therein.
Explanation.––For the purposes of this clause,––
a) “non-fungible token” means such digital asset as the Central Government may, by notification in the Official Gazette, specify;
b) the expressions “currency”, “foreign currency” and “Indian currency” shall have the same meanings as respectively assigned to them in clauses (h), (m) and (q) of section 2 of the Foreign Exchange Management Act, 1999.
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