The government has introduced new regulations aimed at taxing and tracking virtual digital assets in the 2022-23 federal budget. In addition to the tax framework, the budget defines virtual digital assets for the first time.

The Finance Act defines virtual digital assets in a newly inserted provision (47A) of Section 2 of the Income Tax Act 1961.

Regardless of the nomenclature used, a VDA is defined as any information or code or number or token that is encrypted or otherwise generated. and may be transmitted, stored or traded electronically.

In addition to the three criteria above, one of the following two conditions needs to be met to qualify for a VDA.

The definition of VDA also specifically includes non-fungible tokens, i.e. NFTs, or any other token of a similar nature, whatever the name.

The definition of NFT will be notified by the central government.

Generally speaking, NFT is a digital asset that exists on the blockchain, and anyone can verify its authenticity and owner.

Digital art, images, videos, text, music and even virtual real estate and in-game items can be bought and sold as NFTs.

The Finance Act also authorizes the government to designate any other digital asset as a VDA, or exclude any digital asset from the definition of a VDA.

It is worth noting that Indian and foreign currencies as defined in the Foreign Exchange Control Act 1999 have been excluded from the scope of the VDA.

While the VDA includes cryptocurrencies, the definition can cover a wide variety of digital assets, as implied by the “or otherwise” in the phrase “generated by cryptographic means or otherwise.” The definition also includes words such as “information”, “code”, “number”, etc.

Due to its broad definition, VDA may include vouchers, bonus points issued by shopping sites or credit card companies, airline miles, etc. Experts have sought clarification from the government. They are concerned that the scope of the VDA could affect the digital assets created by the company.

Complete News Source : Business Standard