Digital assets await conducive legal framework: The Tribune India

Pavane Duggal

Cyber ​​law expert

Finance Minister Nirmala Sitharaman’s 2022-23 budget speech explored a path less traveled and opened up potential for many opportunities. One of its main features is the mention of digital currencies.

Till date, India had a fiat currency in the form of Indian Rupee. However, with the increased reliance on digital format and with more and more Indians jumping on the digital bandwagon, the government has realized the need for a digital currency. This is why the Minister talked about the introduction of Central Bank Digital Currency (CBDC).

The CBDC concept is evolving. In layman’s terms, the advent of cryptocurrencies has caused central banks in various countries to think about offering alternatives to cryptocurrencies. The CBDC is often seen as a digital token issued by a country’s central bank.

Often, the central bank pegs the digital token to the fiat currency of the relevant country. As the Atlantic Council points out, the Central Bank Digital Currency is a virtual currency, backed and issued by the central bank of the country concerned. The advantage of the CBDC is that it is under the responsibility and responsibility of the central bank of the country concerned.

In this context, the budget speech highlights the proposed issuance of digital rupee using blockchain and other technologies by the Reserve Bank of India (RBI) from 2022-23 .

The budget further points out that the CBDC has huge advantages in the form of the digital rupee. India’s digital economy is expected to boom with the arrival of the Indian digital rupee.

Furthermore, it is also envisioned that digital rupee and digital currency would lead to a more efficient and cheaper currency management system.

This represents the dawn of a new chapter when it comes to the evolution of digital currency and digital payments in India.

The term “digital” is mentioned in 35 different places in the budget speech, relating to different aspects of digital ecosystem activities.

The budget speech broke new ground. It provided for the first time a tax regime for digital assets. India has seen a massive increase in cryptocurrencies and crypto-assets. However, it does not have any dedicated legal framework for cryptocurrencies and crypto-assets.

Interestingly, more and more Indians are investing in virtual digital assets, leading to an increase in the scale and frequency of virtual digital asset transactions.

Furthermore, the speech proposes a distinctive regime for the taxation of virtual digital assets. The salient elements of this scheme are diverse. It provides that any income from the transfer of these assets will be taxed at the rate of 30%.

Secondly, no deduction in respect of any expense or allowance is thus permitted when calculating such income from the transaction of virtual digital assets, except for the cost of acquiring such assets. .

Third, it has been provided that the loss resulting from the transfer of virtual digital assets cannot be compensated by other income.

Fourth, the scheme provides for a withholding tax (TDS) on payments made in connection with the transfer of virtual digital assets at the rate of 1% of such counterparties above a monetary threshold.

The net effect of these proposals is that the government seeks to extend the scope of taxation to virtual digital assets. This is where the budget speech walks on thin ice.

It should be noted that India does not have any legal framework on virtual digital assets. In its absence, the proposed 30% tax slab on the transfer of any virtual digital asset may be perceived by the common man as an acknowledgment of the legality of such asset.

However, this is a gray area. For the benefit of those trading in virtual digital assets, it is essential that an enabling legal framework is properly framed to support the budget proposal relating to the taxation of these assets.

Moreover, such an approach will bring more clarity and help consolidate the growth of the crypto ecosystem in India.

The Indian digital rupee would also require minimal legal clearance. This is so because the digital rupee as a concept is not recognized in the Information Technology Act 2000. Appropriate amendments should be made under this Act and under the Reserve Bank of India Act 1935, to provide a minimum legal framework for the promotion of the digital rupee.

The legality of the digital rupee will also need to be worked out appropriately. More clarity is needed in this regard so that more people can be encouraged to use the digital rupee.

All in all, the budget speech opened new vistas of opportunities for the digital rupee and virtual digital assets. However, the opportunities need to be backed by an enabling legal framework to ensure that India reaps the benefits of virtual digital assets and digital currency in times to come.