"Parliamentary Finance Panel Calls for Comprehensive Virtual Digital Assets Regulatory Framework"
Virtual Digital Asset (VDA)
blockchain-based digital instrument including cryptocurrencies and NFTs, defined under Section 2(47A) of the Income Tax Act.
Regulatory Arbitrage
exploiting gaps between different regulatory regimes to avoid oversight, a key risk of the current VDA vacuum.
Virtual Digital Assets (VDAs) — a category that encompasses cryptocurrencies, non-fungible tokens (NFTs), and related blockchain-based instruments — occupy an unusual position in India's financial regulatory landscape. Unlike conventional securities, derivatives, or bank deposits, VDAs do not fit neatly into any existing statutory category. India's first formal acknowledgement of VDAs came through the Finance Act, 2022, which introduced Section 2(47A) of the Income Tax Act to define VDAs for taxation purposes and imposed a flat 30% tax on VDA gains along with a 1% Tax Deducted at Source (TDS) on transfers. Separately, the Prevention of Money Laundering Act (PMLA) was amended to bring VDA service providers under its ambit, requiring them to register with the Financial Intelligence Unit-India (FIU-IND) and comply with Know Your Customer (KYC) and suspicious transaction reporting norms.
However, these measures addressed only the fiscal and anti-laundering dimensions of VDAs — they did not create a comprehensive market regulatory framework. No Indian statute currently governs the issuance, trading, custody, or investor protection aspects of VDAs in the manner that the Securities and Exchange Board of India (SEBI) governs equities or the Reserve Bank of India (RBI) governs banking instruments. This regulatory vacuum has persisted even as the global VDA market has grown substantially and as jurisdictions such as the European Union (through its Markets in Crypto-Assets Regulation, MiCA), the United States, and Singapore have moved toward structured oversight regimes.
The core regulatory challenge with VDAs stems from their hybrid nature. They are neither purely a currency (since they are not legal tender and lack sovereign backing), nor a commodity (since they have no intrinsic physical form), nor a conventional security (since they do not necessarily represent ownership or a debt claim on an issuing entity). The Securities Markets Code (SMC) — a proposed consolidation of India's securities laws — adopts a technology-neutral definition of securities. Under this definition, VDAs do not satisfy the legal characteristics of securities or derivatives, which means they would be explicitly or implicitly excluded from the SMC's regulatory perimeter.
This exclusion creates what the Parliamentary Standing Committee on Finance has termed a 'regulatory grey area'. Without a designated regulator, VDA participants face: (a) regulatory arbitrage — the ability to exploit gaps between different regulatory regimes; (b) heightened fraud and manipulation risk — since no authority has jurisdiction to investigate or penalise market misconduct; and (c) inadequate grievance redressal — since no statutory mechanism exists for aggrieved investors to seek recourse. …
Which of the following statements about Real-World Assets (RWA) Tokenization are correct?
1.Tokenization is the process of turning real world assets into digital tokens using blockchain technology.
2.Tokenization of real world assets offers 24x7 access, promoting financial inclusion.
3.Tokenization of real world assets will allow the access to high growth investment opportunities for individuals in India.
Select the answer using the code given below:
With reference to Central Bank digital currencies, consider the following statements:
1.It is possible to make payments in a digital currency without using US dollar or SWIFT system.
2.A digital currency can be distributed with a condition programmed into it such as a time-frame for spending it.
Which of the statements given above is/are correct?
With reference to the Digital India Land Records Modernisation Programme, consider the following statements:
1.To implement the scheme, the Central Government provides 100% funding.
2.Under the Scheme, Cadastral Maps are digitised.
3.An initiative has been undertaken to transliterate the Records of Rights from local language to any of the languages recognized by the Constitution of India.
Which of the statements given above are correct?
With reference to Virtual Digital Assets (VDAs) in India, consider the following statements:
1.VDAs are defined under Section 2(47A) of the Income Tax Act.
2.VDA service providers are required to comply with the Prevention of Money Laundering Act (PMLA).
3.VDAs are classified as securities under the proposed Securities Markets Code (SMC).
4.A flat tax of 30% applies on gains from VDA transfers.
Which of the statements given above are correct?
The Parliamentary Standing Committee on Finance recommended an interim Self-Regulatory Organisation (SRO) mechanism for Virtual Digital Assets (VDAs) primarily because:
Assertion (A): The proposed Securities Markets Code (SMC) does not cover Virtual Digital Assets (VDAs) within its regulatory perimeter.
Reason (R): The SMC adopts a technology-neutral definition of securities, and VDAs do not satisfy the legal characteristics of securities or derivatives under this definition.
Which one of the following is correct?
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