The growing popularity of cryptocurrencies in India and around the world has caught the attention of tax authorities. The US government recently passed an Infrastructure Bill that would raise $28 billion in tax revenues from crypto transactions to fund its infrastructure projects.
Besides cryptocurrencies, governments are eyeing ways to tax the rapidly growing NFT industry. According to a report by Economic Times, India’s tax department could soon levy a double tax on NFT transactions. Purchase of any digital assets could attract both equalization levy and GST (Goods and Services Tax).
Table of Contents
But wait, what is an NFT?
Holding a Non-fungible Token (or NFT) represents digital proof of ownership of any real-world objects like art, music, videos and in-game items. By definition, non-fungible means that it is distinct and can’t be exchanged for something similar.
For instance, an original copy of a letter written by Mahatma Gandhi is unique and can be bought and sold online as an NFT.
How does this work? First, the letter would be stored in a locker and an NFT with a digital signature unique to the letter would be generated. This NFT can then be sold online. The owner of the NFT thus holds legal rights to the original letters.
NFT relies on the same programming foundations as that of cryptocurrencies. NFTs are stored on the blockchain, a distributed public ledger that records transactions. And most NFTs are part of the Ethereum blockchain.
The NFT Boom
The first half of 2021 saw an unprecedented surge in the sale of NFTs which stood at $2.5 billion, up from $13.7 million in the first half of 2020.
The boom is largely aided by NFT marketplaces – platforms where NFTs can be stored, displayed and traded. OpenSea, Rarible, SuperRare, and Nifty Gateway are some popular universal digital-art oriented marketplaces.
In the previous month, OpenSea accomplished $1.22 billion worth of NFT trade on its platform, a 950% month-on-month increase. Most NFT buyers view it as a collectible or an investment.
More on the NFT Taxation in India
‘NFT, just like cryptocurrency, will attract the 2% equalisation levy as well as GST,’ noted Girish Vanvari from the tax advisory firm Transaction Square.
Equalization Levy is a direct tax imposed on foreign tech companies conducting business in India. So, any NFT transaction carried out by Indians on exchanges not based in India could attract the 2% levy.
As there is no explicit clarification as yet with regard to taxation on cryptocurrency transactions in India, the speculated double tax on NFT is a wait and watch.
P.S: KuberVerse is an educational initiative. Anything expressed here directly or indirectly is not investment advice. And we ask you to do your own research before investing.