Cryptocurrency frenzy has ensured people unfamiliar with Non-Fungible tokens have become popular even in India. However, buyers of the digital collectibles may have to pay higher tax as the government impose Goods and Services Tax as well as 2% equalisation levy, normally applicable for companies outside India but with Indian operations.
Though India’s Finance Minister Nirmala Sitharaman had shelved aside the idea on cryptocurrencies being taxed in the country last month, the levy has been done traditionally on foreign companies like Amazon, Facebook amongst others. This tax can compensate earning revenues from Indian companies.
Adoption of NFTs can take a hit if double taxation is implemented even as the debate continues on the value of digital assets. NFTs are considered to be speculative akin to cryptocurrencies.
Blockchain-based digital collectibles are buzzwords both due to high valuations as well as new use cases being discussed.
Sporting fans are eyeing collectibles online even as traveling and social distancing remain curtailed. NFTs are unique code or blockchain-based digital file, that are not able to exchange cryptocurrencies as Bitcoin is similar to the other.
OpenSea, the largest platform globally for selling NFTs, witnessed surge in trading volumes by 950% in one month to reach $1.22 billion.
Though NFTs aren’t considered on similar lines as crypto investment, rich off people are targeting them to diversify portfolio. Globally, NFTs are being seen as a fresh avenue for Indian artists for demonstrating work and generating revenues.
Visual artists Santanu Hazarika and Indie pop icon Ritviz did sales of their collaboration on India’s crypto exchange Wazir X NFT marketplace for $391.80 within seconds of going live. In another development, host and TV actor Vishal Malholtra was another celebrity selling NFT for a bigger amount of $5,500.
These are just some of the 160 pieces of digital art that the platform witnessed sales in less than a month of its launch in June. After an initial success, the marketplace came out with collectibles concentrating on participating athletes in the Tokyo Olympics 2021.
The firm mined GIFs, artwork as well as some more digital mementos for capturing historical wins witnessed in Japan. NFTically is one more NFT marketplace that Indian investors may wish to target, allowing to set up shop if they don’t need to operate on the main platform.
Ideally, NFT’s must be taxed based on the nature of the underlying asset. Example-a digital art NFT may be treated as intangible asset for GST purposes but taxes may be paid accordingly. Yet, digital nature and cross-border aspect of NFT transactions are some of the complex parts associated with tax issues.
Foreign and domestic platforms may also face issues under withholding tax or tax-collection-at-source under GST and income tax laws. Furthermore, sales by offshore and onshore sellers would need to be monitored and tax must be cut accordingly by the NFT platform operators. This is why tracking and monitoring those transactions can be challenging especially when resident sellers were involved.
In February 2021, a news publication had quoted a senior finance ministry official opining that the GST would be 18% as well as income tax to be paid from earnings. However, sporadic reports besides there is less clarity on the taxes to be charged for crypto trades
Viraj Desai is a former banker turned communications professional with over ten years of experience across Financial institutions, multilaterals media and corporates. He has over ten years of experience including a stint as a financial journalist with India's largest business daily, The Economic Times, covering energy and infrastructure policy developments in India. He has also led communications for advisory projects in the International Finance Corporation,World Bank's private sector arm. Mr Desai has a Masters in Public Policy from TERI School of Advanced Studies, graduation from Madras University, a diploma in Journalism and a certification from the MICA Institute, Ahmedabad on Data Analytics.