What are virtual digital assets?

GS Paper 3:

Syllabus: Awareness in the fields of IT, Space, Computers, robotics, nano-technology, bio-technology and issues relating to intellectual property rights.

Context:

The government has clarified that the TDS on virtual digital assets continues to be 1%.

• The clarification from the Income Tax comes after some media reports mentioned that the TDS rate for virtual digital assets has been dropped to 0.1% from 1% as announced earlier in the budget.

What is 1% TDS on crypto trade?

Following the 30% taxation on the gains arising from the cryptocurrency assets, the Centre will implement the 1% TDS on the transfer or consideration of every trade from 1 July, 2022.

• While the industry players see this move as one of the most controversial provisions over the cryptocurrency taxations, the Centre believes that the new TDS mechanism is used to trace transactions and prevent tax evasion.

What is TDS?

TDS is a liability enforced against the exchanges that deposit tax on behalf of sellers on the platform. It will be calculated at 1% of the transaction value.

Tax on income from virtual digital assets:

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

• 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.

What are virtual digital assets and how are they different from digital currency?

In simple words, it basically means cryptocurrencies, DeFi (decentralised finance) and non-fungible tokens (NFTs). Prima facie, this excludes digital gold, central bank digital currency (CBDC) or any other traditional digital assets, and hence aimed at specifically taxing cryptocurrencies.

Does the 30% tax mean crypto assets have been legalised in India?

A tax law can’t make anything legal or illegal—that has to be done via a separate statute.

InstaLinks:

Prelims Link:

1. About CBDC.
2. What are NFTs?
3. Cryptocurrencies and their regulation in India.

Mains Link:

Discuss the significance of blockchain technology.

Q. 4) Virtual digital assets include:

1. DeFi (decentralised finance).
2. Non-fungible tokens (NFTs).
3. digital gold.

Choose the correct answer using the codes given below:

1. 1 only.
2. 2 only.
3. Both.
4. None.

Sources: Indian Express.