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Taxation of Non-fungible Tokens
India took its first step towards regulating non-fungible tokens when the Finance Bill of 2022, in particular Section 2(47A) and notifications 74 and 75 of 2022, were introduced. However, these amendments seem to be insufficient and superfluous given the complex and novel subject matter of NFTs. An attempt is made to dissect the provisions and examine the bill.
Non-fungible tokens (NFTs) are all the rage, particularly in the digital and intellectual property communities. An NFT is a special type of digital asset or token proved to be unique and not interchangeable with another digital asset token (that is, fungible). Typically, the uniqueness of the NFT exists as a cryptographic record on a blockchain, or distributed ledger, and can readily be viewed by anyone. While that is not always the case, NFTs are not just digitised information about an asset—they are a digital asset. Tokenising (securing sensitive data rather than representing irreplaceable digital assets using a platform that exchanges customers’ sensitive data for non-sensitive data) these real-world tangible assets make buying, selling, and trading them more efficient while reducing the probability of fraud. In addition to enabling artists to commercialise their work in hitherto unexplored ways, NFTs facilitate a self-perpetuating chain of ownership in a particular object, which can range from a tweet to a musical composition. On a distributed ledger, NFT transactions are recorded, allowing individuals to determine if the NFT is issued by the creator.
Cryptocurrencies have been in existence globally since 2008 and have been credited as the first known NFT, minted in 2014, that managed to capture the limelight throughout the pandemic, with the NFT market achieving all-time highs in 2020–21 (Ray 2022; Mirza 2022). With the public clamouring around NFTs, legal issues surrounding taxing of the NFTs have slowly arisen (Howcroft 2021). The purpose of this note is to track and analyse such issues.
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