The Central Board of Direct Taxes (CBDT), which is part of the Department of Revenue, Ministry of Finance, has said that only NFT trading without concurrent sale of the underlying physical asset will be subject to the tax rates prescribed for virtual digital assets (VDAs).
In the notification, the CBDT said: “The Central Government hereby designates a token which shall be a virtual digital asset within the meaning of sub-section (a) of clause (47A) of section 2 of the Act as a non-fungible token.” but shall not include a non-fungible token whose transfer results in a transfer of ownership of the underlying tangible asset and the transfer of ownership of such underlying tangible asset is legally enforceable.”
It is noteworthy that Union Finance Minister Nirmala Sitharaman had said in the budget that 30% Income Tax and 1% Tax Deduction at Source (TDS) will be applicable on gains from VDA related transactions including cryptocurrencies and NFTs. transactions to trace them.
NFTs, or non-fungible tokens, are separate cryptographic tokens with a unique identification number and metadata that reside on a blockchain and cannot be copied. These work similarly to communication or information tokens, but they are not fungible or interchangeable like cryptocurrencies like bitcoin or ethereum.
However, in another notification, the CBDT clarified that loyalty cards, gift cards, vouchers, mileage points and reward points are not VDA and will not attract tax.
After these information surfaced, industry insider Vineet Budki, Managing Partner and CEO, Cypher Capital, shared his opinion with News18. He said: “The Central Government is taking steps to constitute VDAs and is taxable under the new law. After this notification, the business of VDAs which will involve transfer of ownership of physical assets will not be taxed and the underlying will be subject to applicable taxes on the asset.
He added: “This certainly opens the door for companies that intend to leverage NFTs to tokenize physical assets and use it to facilitate ownership transfers between parties.”
Additionally, he said there was still a lot of uncertainty about how this would work and what steps the parties should take to maintain compliance. According to Budaki, it will only be a matter of time before a comprehensive framework emerges to govern VDAs.
Meanwhile, Moneycontrol reports that several industry insiders are of the view that this is the first time the government has defined NFTs in an indirect way.
Raghav Bajaj, Counsel at Khaitan & Co told monecontrol That NFTs are yet to be given a notified definition and now the government has kindly indicated that any token that meets the criteria of the VDA is an NFT.
He also noted that the Center has emphasized that no NFT exchange, including transfer of ownership of the underlying tangible asset, qualifies as a VDA.
However, it is worth mentioning that for transactions above Rs 10,000, the new law addressing VDA and TDS on cryptocurrencies has come into effect from July 1 and Indian cryptocurrency exchanges have started adopting it on their platforms.
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