Written by Syed Suhaib The author is a law student pursuing LLB from UILS Chandigarh University.
Introduction
The evolution from paper money to paperless transactions has become persistent in India for quite a while now and with their inclusion, the purview of a paperless or a digital economy is being widely acknowledged. This wide acknowledgement raised the potential for Virtual Digital Assets or VDAs in India. The possession of VDA’s began in 2018 (approx.) and it wasn’t until the mid of 2019 (approx.) when the concept of VDA’s started to circulate in India. As the digital progression began, the VDA’s became mainstream and with that, the concern for government, commercial, financial and economic sectors arose because people potentially started investing their money in VDAs (cryptocurrencies and NFTs). Even some companies were investing a small amount of their surplus into VDAs. The VDA’s embarked on the journey of becoming a prevalent asset. The need for scrutinized regulations and adoption of relevant technologies arose amidst their ambitious and ambiguous nature. To coherently articulate the term “Virtual Digital Asset” in its profound sense, it is any value which possesses a cybernated (or rather digital) value and can be traded virtually (preferably over the internet) for transactions and trades. It include digital assets like cryptocurrencies and N.F.Ts. In their unadorned sense, VDAs are also defined in the Section 2 (47A) of the Income Tax Act, 1961 as:
Any information or code or number or token (not being Indian currency or foreign currency) which meets certain conditions:
Non-fungible token (NFT) or any other token of similar nature, by whatever name called
Any other digital asset, as the government may specify by notification.
Regulation of Virtual Digital Assets
In India, the possession of a digital assets seemed like a far fetched idea until the tax imposition was announced by the Finance Minister Nirmala Sitharaman during the 2022 budget, where the expressive mention was made, of the fact that any commerciality from the transfer of VDA’ will taxed at 30%. It was pronounced how much tax will be charged at the source (TDS) which will be 1% on transactions and even gifts of such assets. The prospective nature of VDAs being there and before this the regulation of VDAs was opined to be considered as the detrimental aspect for the free world economy. The prospective nature and scrutiny of VDAs took another step quite recently on the 7th March 2023, when the Finance Ministry announced that all the VIRTUAL DIGITAL ASSETS (which includes cryptocurrency and NFTs) will now fall under the PREVENTION OF MONEY LAUNDERING ACT (PMLA). This as speculated will raise the compliance burden as the exchange of digital assets will be monitored for suspicious activities. Irrespective of the fact that this will increase the compliance burden, it is a small price to pay for the regulations of the virtual assets which will potentially reduce the misuse of these VDAs and spur economic growth. It is even opined by abundant experts, that this just might be the ‘game-changing’ moment for virtual digital assets and they will be coherently utilized in the aggregated economy to boost the revenue stream. The regulation of VDAs has not yet been introduced in any manner, however in 2021, a Cryptocurrencies Bill was brought forward in the Lok Sabha and inquires regarding the bill’s status and discrepancies were raised. The ministry determined that due to the fact that cryptocurrencies are ‘borderless’ in their structure, international collaborations have to be established to forestall regulatory arbitrage.
Potential of VDAs in the Indian Commercial Sector
The VDA’s potential is on the rise irrespective of the fact that crypto markets observed a major fluctuation and downfall during the Covid 19 crisis. The commercial sector has consistently emphasized that India can foster a coherent atmosphere of innovation and stability with a progressive regulatory framework. This might then increase the commercial level of competition and lead to a flabbergasting $1 trillion in terms of economic growth. India has an infrequent opportunity to seize this chance and significantly advance towards its objective of becoming a $5 trillion economy. If India is able to harness the technologies of VDA’s (e.g Crypto Exchanges & Tokenization) with Distributed Ledger Technology, it can potentially lead to an significant growth in financial, economic and commercial sectors.
These technologies are no doubt a typical child’s play to adopt and regulate but assuming these technologies are adopted, they will impeccably skyrocket the whole Indian Economy. There are abundant compelling reasons which are favourable to the adoption and regulations of VDAs. Initially, the existence of cryptocurrency exchanges and intermediaries within a nation will demonstrate adherence to regulations and safety precautions through which bad actors would not be able to indulge in unethical and unlawful behavior via VDAs. Subsequently, it will make sure that these exchanges are subjected to the proper governance and supervisory measures, safeguarding customers and lowering systemic risk. In the Budget session of 2022, the introduction of an India cryptocurrency was also introduced which is allegedly called the Digital Rupee which indicates a major step forward in the inclusivity of VDAs in India, at-least potentially.
Concluding Remarks and the Way Forward
It can be reasonable enunciated that through VDAs, India has the ability to spur economic growth. Other nations including Singapore and Japan have taken the initiative to adopt new technology and tokenization and EU has provided financial institutions a favorable environment to experiment with new technologies. India should also take a progressive stance and create an atmosphere that is conducive to the development of its financial industry through the use of these new technologies.
The regulations and the adoption of relevant technologies are two imperative factors that India can prospectively consider to reap the commerciality via VDAs. In lieu of India launching its own cryptocurrency, it can be concluded that the future of VDAs in India is just around the corner. As aforementioned earlier, the adoption of new technologies and their regulations won’t be easy, rather a scrutinized regulation, adherence and a beady eye is absolutely imperative. These advancement towards the VDAs might eventually lead to the possession of a digital asset or money which will allow the international transfer of money or asset, 24/7 availability and quick transfer at a significantly cheaper rate. This can be a step forward towards the green economy as well. The foreign exchange with VDA’s can also eventually counter the dominance of a particular currency over the world economy in terms of transfer of assets.
The prospective nature of VDAs is certainly dexterous to the economy in terms of commerciality but India must contemplate a full fledged strategy to coherently include the VDAs in the country. Indubitably the VDA’s ambiguous and eccentric nature often raises skepticism and prevents that from happening, but with a scrutinized and well articulated framework, that absolutely can be countered and the commerciality of VDAs can be accumulated.
Informative.