The Central Board of Direct Taxes recently came up with two notifications that further clarified the definition of Virtual Digital Assets (“VDA”) as given in Section 2(47A) of the Income Tax Act, 1961 (the “Act”). Notification 1 notified that gift cards, vouchers, mileage points, reward points, loyalty cards, subscriptions to websites or platforms or applications are excluded from the definition of VDA. Notification 2, on the other hand, has specified that a Non-Fungible Token (“NFT”) whose transfer results in the transfer of ownership of an underlying tangible asset which is legally enforceable, will not be covered under VDA.
Power to Alter Definitions
Both these notifications have been issued pursuant to powers given to the Government under Section 2(47A) of the Act to exclude any digital asset from the definition of a VDA and power to specify digital assets that would get covered under NFT. With an evolving nature of VDAs, it perhaps appealed to the legislators to give powers to the Government to alter the definition as and when required through notifications. However, such powers that allow the Government to alter the definition by issuing a mere notification may result in lack of stability in taxing VDAs leading to unnecessary litigation. In fact, this begs the question of should delegated legislation be allowed to alter the definition of an asset which carries a high rate of tax?