The Finance Minister on February 1, 2022, presented the Union Budget, 2022 (“Budget”). The Budget announced certain important developments in the realm of Virtual Digital Assets (“VDAs”). This is the first time that the Government of India has attempted to regulate VDA’s. Positively, with the regulation of VDAs under the Budget, it can be assumed that the Government of India does not plan on banning cryptocurrency as was speculated before.
The various developments made under the Budget in relation to VDAs include:
- The Government of India has planned to introduce a digital currency, also known as Central Bank Digital Currency (CBDC) backed by the Reserve Bank of India in the fiscal year 2023. The Finance Minister presented that the introduction of CBDC shall ‘boost the digital economy’.
- The Government of India, through the Budget, has announced a rigid tax regime that aims to deduct tax on ‘income form transfer’ of VDAs at the rate of 30% (thirty per cent) (applicable from April 1, 2022).
- The tax regime for VDAs provides for no deductions in respect of any expenditure excluding ‘cost of acquisition’.
- The Budget also provided that any loss incurred from the transfer of VDAs shall not be set off against any other income heads.
- The Budget has provided for tax deduction at source (TDS) at the rate of 1% (one per cent) for payment made in relation to the transfer of VDAs.
While the Government of India, through the Budget, has taken a step forward in order to be in sync with the digital age and with digitally advanced countries, it has not provided a detailed clarification in relation to the tax regime. Further, the Finance Minister did not provide an elaborate understanding of the rollout and operations of CBDC. Overall, it is opined that the Budget as presented by the Finance Minister has left the interpretation of VDA provisions (as to be amended) open-ended, providing limited clarification to the subject- matter in hand.