Starting with blockchain for the first time? You will need to know the various assets that blockchain offers to understand how each of them works and can be used for transactions. This blog explains all such blockchain assets like NFTs, stablecoins, CBDCs, security tokens, and utility tokens, and the laws applicable.
Key Takeaways
- Digital Assets: Blockchain assets are all digital assets that you can use within a blockchain the respective blockchain network.
- Types of Assets: The major types of digital assets include native coins, tokens like security tokens and utility tokens, stablecoins, NFTs, and CBDCs.
- Taxes and Regulations: All blockchain digital assets come under the VDA framework as per the Income Tax Act, and you need to pay certain taxes on gains.
A blockchain is a digital database or ledger of transactions where you buy and sell digital assets like cryptocurrencies, stablecoins, tokenized assets, non-fungible tokens (NFTs), and utility/governance tokens.
If you are planning to start trading with blockchain for the first time, you will need to understand the aforementioned types of digital assets used in trading. This blog explains each of them, from utility tokens to digital commodities.
Know the Foundation Before You Trade
What is blockchain and cryptocurrency? First of all, blockchain is a shared and immutable digital ledger that records all transactions happening in a business network to track all the assets.
Now, cryptocurrency is the most widely used digital asset/currency that uses cryptography to conduct transactions. No bank is involved, as digital money transactions happen peer-to-peer.
The Other Assets of Blockchain Beyond Cryptocurrency
Blockchain assets are not just about Ethereum or Bitcoin. Digital assets include several types, such as native coins like Bitcoin and Ethereum, tokens, stablecoins, and NFTs.
All these are covered under one legal category in India. According to the Income Tax Act (Section 2(47A)), all blockchain assets are considered Virtual Digital Assets (VDAs), and the government determines how they are taxed. However, while CBDCs can be blockchain assets, they are not considered VDAs. Instead, they are considered sovereign digital assets.
The following core assets in blockchain are further grouped into buckets. Some of them are currency, some are utility, and others are either security or commodity. It is more important than the price chart, as it determines where you can use it and under which regulations.
| ⚠️Caution
A token’s category can change based on how it is regulated overnight. If your project raises funds by promising profits, there is a risk of reclassification as securities. This can affect your liquidity and listing status without warning, even when you consider your token as “utility”! |
Native Coin
It represents the base currency of its own blockchain, which includes Bitcoin (BTC) or Ether (ETH). This one is primarily used as a store of value or as network fuel or gas.
Utility Token
It represents access to a platform’s service or product, for example, BNB (fee discounts). The primary uses of utility tokens are for platform access, fee discounts, and governance.
Security Token
This token represents digital ownership/investment stake in an asset or venture such as tokenized real estate or equity. It is primarily used for investment and ownership stake.
Stablecoin
A stablecoin represents a token pegged to a stable asset, generally a fiat currency like USDT or USDC. You can use this one to reduce volatility and for trading pairs.
NFT
NFT usually represents unique and non-interchangeable ownership records, like digital art or in-game items, that are used to prove ownership of a unique item.
CBDC (Central Bank Digital Currency)
CBDC is a state-issued digital currency supported by the central bank, for example, the Digital Rupee (e₹) by the RBI. Indian traders generally use this for retail and wholesale digital payments.
This overall helps when you want to know, “What is blockchain for dummies?” But when it comes to actually using them for trading in India, there are certain regulatory aspects that you need to keep in mind.
| 💡Tip
Before you buy any token, check its whitepaper for one line. Understand what the token actually lets you do, because if it does nothing and still asks you to trade it, it is a concern, not a utility. |
Taxation and Regulation of Blockchain Assets in India
All assets in blockchain are regulated more or less by the Indian government bodies like the Securities and Exchange Board of India (SEBI), the Financial Intelligence Unit – India (FIU-IND), or the Reserve Bank of India (RBI).
This is regardless of the type of asset you are using, as the Indian tax code applies to gains from all of them under the VDA framework. Overall, you should be aware of what you are finally holding to be ready for prompt risk management as well as tax planning.
- Tax on Gains: You should pay a flat 30% + 4% cess as per Section 115BBH, no matter what your holding period is.
- TDS: 1% will be deducted at source on transfers higher than the notified threshold as per Section 194S.
- Loss Set-Off: VDA losses will never be able to offset your gains from other VDAs or any other types of income.
- Reporting: You must disclose the amounts under Schedule VDA in ITR-2/ITR-3.
- Regulatory Oversight: Check for FIU-IND registration of your trading app; RBI and SEBI only monitor system risk, not the transactions.
Furthermore, VDAs are now broadly considered as property or digital commodities instead of as money. This is why they are now taxed under capital-gains-style provisions rather than currency rules.
This commodity label also changes everything from how exchanges list these assets to how you, as a trader, should think about long-term holdings and market volatility.
| 📝Use Case
A Bengaluru-based gamer received reward tokens for in-game achievements. They traded those tokens for stablecoins to lock in value before converting them into INR. This means that they treated utility tokens as earned assets instead of speculative bets. |
If you learn to differentiate between each of the assets, your trading decisions will get better over time. This includes things like how a token’s price reacts to protocol news, how Bitcoin responds to macro trends, or why a stablecoin barely moves.
| 📝Use Case
An investor was exploring tokenized real estate, and they eventually bought a security token that represented fractional ownership in a commercial property abroad. They were able to do that using our market data to track it the same way they’d monitor a mutual fund NAV. |
Conclusion
Blockchain assets are not of the same type, and all of them behave differently in the market. Do not treat all digital assets as crypto to avoid getting blindsided by the risk that you did not actually sign up for. Whatever asset you are holding right now, knowing its category is the first step to safe trading.
Are You Planning to Start with Blockchain? Begin with 5Trade!
Our platform can help you with how to trade, paper trading, and real trading. Download the app now or register today to grow with us!
Frequently Asked Questions
How are Crypto Tokens Received as Gifts or Airdrops Taxed Under Indian Law?
They are taxed as income at fair market value after you receive them. They are also subject to standard VDA rules and taxes as discussed in the blog.
Does Indian Goods and Services Tax (GST) Apply When Buying or Trading Blockchain Assets?
Yes, the usual 18% GST applies to all trading fees and service charges that are levied by crypto exchanges instead of the asset value.
What are the Consequences of Failing to Report My VDA Holdings in My Tax Returns?
You can be severely penalized, have to pay interest charges, and receive scrutiny notices from the Income Tax Department due to non-disclosure under Schedule VDA.
Can I Lower My Net Taxable Crypto Gains by Using Decentralized Finance (DeFi) Staking Rewards?
No, because reward staking is taxed as income when you receive them. Moreover, you also cannot deduct gas fees or staking costs against gains.
Does Standard Property Stamp Duty Apply to Real Estate Tokens in India?
Yes, local stamp duty can apply to fractionalized transfers. Standard VDA taxation rules will also apply to capital gains after sale.
