Tax on digital assets: impact on NFTs limited for now, but industry wants more clarity

Sentiment around non-fungible tokens has not been as impacted by the new tax regime, particularly the 1% withholding tax, as that of cryptocurrencies.

NFT players believe the new tax regime on virtual digital assets has somewhat dampened the mood, but believe it will have limited impact as the industry is still in its infancy and there are fewer concerns , unlike that of crypto-currencies. However, players said it was necessary to clarify various provisions regarding the 1% TDS, which will come into effect on July 1.

Polarized views

“Feelings on the virtual digital asset tax are on two poles. Some people are very happy to have been placed in the legally acceptable classes and they don’t have to speculate on the legality of those assets. This will attract many new investors who were hesitant to invest in the state due to legal turmoil and lack of clarity. On the other hand, there are people who are worried about tax rates and this discourages them because they made their fortunes while outside the legal taxable area,” said Kameshwaran Elangovan, co-founder and director of the operation of GuardianLink.

While hailing the 1% TDS, however, he noted, “It can sometimes go against the very philosophy that cryptocurrency was founded on, but if we are to come to a consensus between what is practical and what is ideal, these measures must be taken. from time to time.”

“Waiting for more clarity”

Siddharth Jaiswal, Founder and CEO of Sportzchain, said the NFT industry is waiting for more clarity on how to handle TDS end-to-end. “The guidelines are more focused on crypto assets than NFTs,” he said, noting that NFTs are often given as keepsakes and gifts where TDS might be a little tricky. “If I want to gift an NFT, I can create any image as an NFT using blockchain technology and transfer it to someone’s wallet. It’s a peer-to-peer transaction without monetary item attached. I don’t know how the TDS would be deducted,” Jaiswal said.

The 30% tax is not an irritant, however, except that there is no compensation for losses, he said.

An NFT is a digital asset that is written in computer code and recorded on a blockchain ledger. A number of Indian celebrities including actors and athletes have launched their own NFT collections for fans. Industry players point out that NFTs are still at a start-up stage in the country with few investors and awareness. Also, government and Reserve Bank of India concerns are largely reserved for cryptocurrencies and not so much focused on NFTs, they said.

Published on

June 30, 2022