Digital currency will also lead to a more efficient and cheaper currency management system. It is, therefore, proposed to introduce digital rupee, using blockchain and other technologies, to be issued by the Reserve Bank of India starting 2022-23.”
While VCs will now be legal, they won’t be legal tenders. “Crypto will never be a legal tender. Legal tender means by law it is accepted in the settlement of debts. India will not be making any crypto asset as a legal tender. Only digital rupee of the Reserve Bank will be a legal tender in India,” Somanathan said.
In fact, there is only one small South American country, El Salvador, that recognizes Bitcoin, a cryptocurrency, as legal tender
Further, no deduction in respect of any expenditure or allowance shall be allowed while computing income trading in VCs, except the cost of acquisition. Further, loss from the transfer of virtual digital assets cannot be set off against any other income, Sitharaman said in her Budget speech.
To capture the transaction details, she also proposed to provide for tax deduction at source or TDS on payment made in relation to transfer of virtual digital assets at the rate of 1 per cent of such consideration above a monetary threshold. “Give of virtual digital asset is also proposed to be taxed in the hands of the recipient.”
On the whole, the legalization of VCs or cryptocurrencies is a step in the right direction. This will boost fintech. Also, as the Finance Minister said, it will help the introduction of the digital rupee, using blockchain and other technologies.
Post-Budget scenario
A virtual digital asset is 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, stored or traded electronically. There has been a phenomenal increase in transactions in virtual digital assets. The magnitude and frequency of these transactions have made it imperative to provide for a specific tax regime, said the Budget document. Key points:
- No deduction in respect of any expenditure or allowance shall be allowed while computing such income except cost of acquisition.
- Further, loss from transfer of virtual digital asset cannot be set off against any other income.
- TDS on payment made in relation to transfer of virtual digital asset at the rate of 1 per cent of such consideration above a monetary threshold.
- Gift of virtual digital asset is also proposed to be taxed in the hands of the recipient.
